If You’re Retired, Here’s a Key Move to Maximize Your Tax Break Before Year-End
Retirees looking to donate to charity before the year-end should consider qualified charitable distributions (QCDs), according to financial experts. QCDs are direct transfers from an individual retirement account to a non-profit organization. For retirees aged 70½ or older, a QCD can provide a significant tax break.
For 2024, retirees can transfer up to $105,000 tax-free from a pre-tax IRA, a limit that has increased from $100,000 in past years due to the Secure 2.0 bill. The limit will rise to $108,000 in 2025, according to the IRS. While QCDs don’t provide a tax deduction, the transferred amount is excluded from income, making it a more valuable strategy than a standard deduction or itemized charitable gifts.
One of the key benefits of QCDs is that the transfer doesn’t increase adjusted gross income (AGI). Higher AGI can trigger income-related monthly adjustment amounts for Medicare Part B and Part D premiums. Satisfying your required minimum distribution (RMD) is another benefit, as QCDs can offset your RMD, helping to reduce AGI. With many pre-tax IRA balances increasing in 2024 amid stock market highs, a QCD can help mitigate higher RMDs and reduce AGI. Since 2023, most retirees must take RMDs from pre-tax retirement accounts starting at age 73.
