Ask Bob: How Do I Avoid Taxable Income With Charitable Contributions?

Ask Bob: How Do I Avoid Taxable Income With Charitable Contributions? ...


I''ve reached 70 years old and would like to pay income tax on them without using a Roth account. As I understand this, I understand that is possible and avoids any federal income tax, but the age requirement is what I''m not sure about.

Is this all wrong? I''ve just lost a lot of money on my account, which means it wouldn''t take too long to exhaust all of my money, but it would go a lot further if there is no tax.


According to Holly Donaldson, the CFP''s principal financial planner, the tax-free withdrawal you are likely contemplating is a qualifying charitable distribution (QD) from your IRA. This is an excellent way to obtain your funds without paying taxes, but there are a few requirements and procedural considerations, she says.

First, Donaldson says, QCDs are now available on the day you age 70 1/2 and not the day before.

Second, the distribution must be made direct to a public cause. It''s likely that your church is a public cause, but you may ask them to be certain.

Donaldson explains that you might need to call the company that holds your IRA (called the "custodian") to issue a check to the church, but some custodians actually issue checkbooks for IRAs. (I encourage labeling this checkbook as the "Charity Checkbook," so it won''t accidentally cause a taxable withdrawal.) Generally, regular distribution will be a lot easier than monthly.

Third, regardless of the method, don''t wait until late in the year to request the distribution. It must clear the account in order to count for the year in which you are trying to avoid taxes on the withdrawal.

Finally, when your IRA trustee approves the year-end 1099, it will declare that you received a taxable distribution. It is up to you to disclose separately that the distribution was a Qualified Charitable Distribution, Donaldson said. The trustee does not do so for you.

A custodian will calculate this amount for you and send you a notice about it after the first of the year. If you distribute at least that amount in the form of a QCD, then you will have completed a tax-free RMD.

Have you ever asked yourself? Ask yourself!

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