Transcript:
Easan Arulanantham:
What is a charitable or a Qualified Charitable Distributions?
Tom Vaughan:
Yeah, so this is a great question, actually. And this is a good thing. It’s a timely question, because it’s something that a lot of people do towards the end of the year. So a Qualified Charitable Distributions, otherwise known as a que CD, is a situation where you can take money out of your IRA, if you’re over 72, you’re required to take a certain amount out, and you can take all or part of that required amount that has to come out and give it to charity. And then it doesn’t end up on your tax return, it’s one of the best ways to get a write off for a charitable contribution. So if you’re already doing charitable contributions Anyway, let’s just say I always do $5,000. And I normally just kind of write out checks, and I put on my tax term try to get the write off. Well, now that I’m, let’s say, I’m over 72. And let’s say I have a $5,000 Required Minimum Distribution, I can just use that instead, I can actually get a checking book on my IRA, instead of writing it out of my normal checking account, write it right out of my IRA, to a charity, and then that $5,000 never ends up on my tax return. And so that’s a that’s a bigger tax savings, it’s a really good way to go super popular, that Pew CD, the Qualified Charitable Distributions, is very popular, it is the way to give money to charities, once you’re over 72. And you’re using this you know, because you can only do it with your Required Minimum Distribution, which only happens after you’re 72 years old, and only if you have money in IRA assets and those types of things that has to come out. So it’s a, it’s a really cool way to go.
And it’s a good question to ask, because a lot of people do it here at the end of the year, when they kind of know their situation quite well. The only thing you have to be careful of is don’t wait too long. Because in order to count it as a distribution from your IRA, the charity actually has to cash the check. And so you know, if you wait until December 31, and I can appeal the cash the check. So oftentimes you want to be doing this here in October, November, get that money to the charity, make sure that they receive it, make sure that they cash it and that type of thing, so that you can get that write off. Otherwise, you know, let’s say I give a $5,000 check to a charity, they don’t cash it until next year, that’ll help me next year. But it also means this year, I didn’t take anything out of my IRA. So I still have to take the 5000 out of my IRA and pay the taxes on it this year. So make sure the cat that check gets cashed by the charity. And we’ve had lots of little problems with that where the check hasn’t got lost or whatever. So give yourself a little bit of time to make sure that that you know happens.
Easan Arulanantham:
Yeah, so it’s important to take your RMDs because penalty is very brutal compared to other penalties from the tax code.
Tom Vaughan:
That’s half so if that $5,000 you don’t take it out. 20 $500 penalty. So that’s one of the highest penalties. I’ve never seen buddy. Pay it honestly and 35 years, but that’s because people do pay attention to it.