Last year we released an interesting article on Qualified Charitable Distributions (QCD) and how they can impact the bottom line for those individuals facing Required Minimum Distributions (RMD) from retirement accounts. And then came 2020, which brought with it significant changes to RMDs as part of the enactment of the SECURE ACT. We wanted to highlight these changes and discuss their impact on QCDs as a tax-saving strategy.

Let us review the basics of the QCD before looking at the changes created after the enactment of the SECURE ACT. Here is how a QCD works –  

  • IRA owners (must be at least 70 ½, at the time of QCD request) may directly transfer up to $100,000 from their IRA to an eligible charity, tax-free. If you are married, you and your spouse may both transfer $100,000 to an eligible charity, bringing the total eligible tax-free distribution for married couples to $200,000.
  • The distribution must be paid directly from the IRA to the charity of your choice; you cannot first receive the distribution and then make the contribution to the charity.
  • Also, you may not receive anything of value from the charity in exchange for your contribution.

There are two significant changes that we would like to discuss regarding RMDs that occurred as part of the enactment of the SECURE ACT. The first significant change is the adjustment to the RMD commencement age as per the SECURE ACT. As per the SECURE ACT, if you turned 70 ½ in 2020, your first RMD is not required until April 1st of the year after you reach 72. If you turned 70 ½ prior to 2020, your first RMD was required by April 1st of the year after you reached 70 ½, unless you turned 70 ½ in 2019, in which case the CARES ACT allowed for RMDs in 2020 to be skipped. The second significant change enacted via the SECURE ACT was that it ended the limitation on those 70 ½ and older from making IRA contributions. How do these two changes impact your decision on if a QCD is right for you?

While the required commencement age for RMDs was raised to 72, the SECURE ACT did not change the age at which you may begin making QCDs. The age at which retirees may begin making QCDs remains at 70 ½. Consequently, if an individual makes a deductible IRA contribution after the age of 70 ½, their eligible QCD amount will be reduced by the amount of that deductible contribution. Contributions to ROTH IRAs or nondeductible IRA contributions would have no impact on the amount of QCD available.

These two changes will have significant planning impacts for those individuals considering making QCDs as part of a tax-saving strategy. The decision on whether you should continue making IRA contributions after 70 ½ and when to start making qualified charitable distributions is one that should be discussed with a tax planning professional. 

Couple these changes with a new administration taking office and a world battling a global pandemic, and it seems reasonable that we should be on the lookout for other changes. At Kimble, we will strive to keep you informed of the changes and the impact on your bottom line. If you have any questions about QCDs or RMDs, please feel free to reach out to one of us!