Transcript:
Easan Arulanantham:
So we have a question. And that’s kind of like a tax question is, what is a qualified charitable distribution, we have this at the end of the year usually. But, you know, since tax season just ended, it’s kind of good to be a little bit more thoughtful with your taxes.
Tom Vaughan:
Qualified Charitable Distributions in our business, we call that a QCD. Alright, so if you hear that, that’s what that acronym means. And this is by far, I think, the best way to give money to a charity. But there are some criteria for you to qualify for that. You can use money out of your retirement plans, or 401k, as your IRAs, even beneficiary, IRAs, those types of things. And you can gift that to charities, and not have to pay taxes on that gift with one major criteria is that it has to be after you reach the age of Required Minimum Distribution, which right now is 72. So if you’re 72, or older, and you have to take money out of your plans, you can give some of that money through this qualified charitable distribution to a charity. And so for example, let’s say that the, you’re over age 72, and your requirement distribution, that’s called an RMD. And our business is 10,000. Okay, let’s say that I normally give $7,000, to the Second Harvest Food Bank, that’s one of my favorite charities. And before 72, when I gave that 7000 out, I may or may not gotten a write off on that, because it depends on my other incomes, whether I have, you know, the standard deduction, you know, all these different things. But once I turned 72 and a half to take this 10,000 out, I can now give that 7000 directly to the Second Harvest food bank or any charity, and I don’t have to include that on my tax return, it just completely disappears, the only thing ends up on my tax return is that other $3,000.
But there are a couple criteria there. Number one is you can’t receive the money from the requirement and distribution into your bank account, and then pay it because that’s just like a normal charitable contribution, you’re still be under the old rules, that money has to go directly to the charity from your IRA, or 401k, or what have you. So there’s two ways of doing that. Number one, at least within our firm, you fill out some forms, and we send it to him, the custodian in our case, TD Ameritrade sends it to him, and the charity gets it that way or, and this is my preferred method, you get a checkbook on your IRA, and you write out that check to Second Harvest Food Bank, in this case for 7000. And send it to him. And I like to check with two because sometimes you get things that you’ll see in the mail, say, I’d like to give $250 to that, just write out the check, you don’t have to fill out forms, it’s super simple. But in order for it to count, as part of your requirement distribution for the year that charity has to cash that check in this year, so you do not want to send it on the 31st of December. Because it’s not gonna get cashed this year. Yeah, maybe October or something. And, you know, make sure that that check is received and gets cashed. Because then you only have to take out in that case that other 3000 You don’t have to worry about that. 7000. So really fascinating, very popular within our clientele. Right now. We do a lot of these.
Easan Arulanantham:
Yeah, but there’s a limit. So if your RMD use are. So the limit is 100,000. If your limits go above that, if your RMDs are above that, you can’t exclude all of it. And so there’s a limitation. And so you should kind of plan for that if you’re going to do RMD or ARK UCDS, how much am I going to do? And then what’s the rest of my RMDs? We would take?
Tom Vaughan:
Yeah, I think that really great subject. Good question. Actually very popular. Lots of people asking about it. And it’s, you know, the, the accountants are probably pointing them to it too, you know, because we seem to get that, you know, around tax time, there’s a lot more interest in it, you know, at least for that year as far as that goes. So, I think it’s, you know, one of the nice things that they did here for charities, and it’s a great, great concept. So good question.
All right.