RMD to charity vs taking RMD then donating to charity

Submitted by Pete Holzgang on Mon, 2013-11-18 15:48

Can someone explain if it’s more beneficial to make a RMD direct to charity vs taking the RMD and then making the charitable contribution. On the face of it I would think it would be a wash assuming that one itemizes deductions. Am I missing something?



Submitted by Alan - IRA critic on Mon, 2013-11-18 16:51

  • Yes. While there may be a small minority of taxpayers for which this is a wash, most taxpayers would experience a larger tax savings by making a QCD. Here are some of those advantages:
  • 1) Most seniors cannot itemize due to lower expenditures, particularly mortgage interest and higher standard deductions. If you DO itemize, the full benefit of a charitable deduction only results when the itemized deductions exceed the standard deduction by at least the full amount of the contribution.
  • 2) AGI does NOT increase with a QCD, while it does with no QCD and itemizing. This can result in much less SS benefits being added to AGI for those who already do not have 85% of SS included. Also, there are itemized deductions with a % limit floor such as medical expenses (7.5% going to 10%) and many misc deductions (2%) which are reduced when AGI rises. Could also be some AMT impacts. Some tax credits are reduced or eliminated with higher AGI.
  • 3) For IRA owners with basis, a QCD taps all pre tax amounts first, leaving the basis for non QCD distributions which will then reduce taxes on future non QCD distributions.
  • 4) Iteming charitable contributions is subject to a % of AGI limit based on type of recipient. Contributions that cannot be itemized in the year of contribution must be carried over, and expire eventually.
  • Higher earners are again subject to itemized deduction phaseout and exemption phaseout.


Submitted by Pete Holzgang on Mon, 2013-11-18 17:21

Thanks.



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