RMDs and QCDs
What is the tax benefit of making QCDs at age 70 1/2 if you don’t start taking RMDs until age 72?
Is the only benefit being that it will decrease the balance of the IRA thus resulting in possible lower RMDS in the future?
What is the tax benefit of making QCDs at age 70 1/2 if you don’t start taking RMDs until age 72?
Is the only benefit being that it will decrease the balance of the IRA thus resulting in possible lower RMDS in the future?
Permalink Submitted by Alan - IRA critic on Fri, 2022-04-08 01:10
There is a future benefit from a pre RMD QCD of reducing lifetime RMDs and therefore taxable income as well as the amount of SS included in your AGI due to higher AGI post RMD age. And if you cannot itemize in the current pre RMD year, there is no tax benefit at all unless you utilize a QCD. Also, if your IRA has basis, a QCD uses all pre tax money, which concentrates the remaining basis as a % of future RMDs.
Permalink Submitted by Mike Caldwell on Mon, 2022-04-11 22:36
Thanks Alan for your response. For clarification, when you say “if you cannot itemize in the current pre RMD year, there is no tax benefit unless you utilze a QCD.” Does that mean the QCD can still be deducted even though there is no RMD?
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-12 00:13
If donations cannot be deducted, there is no tax benefit from the donation. But if a QCD is distributed instead, the donation is pre tax because it is made from never taxed funds, and these funds will not be available for future taxable distributions. In such a situation there is a future tax benefit from reduced future RMDs, but no current year tax benefit.
On the other hand, if a donation can be fully deducted when itemizing, taxable income for the year is actually reduced creating a current tax benefit, but no future benefit.