Q. A recent column showed that eligible Charity Delivery (QCD) options are available at 70 1/2. i am confused. I also thought there was no need to obtain the minimum distribution (RMD) I needed for several more years. 70 If I take QCD when I reach 1/2, should I get the minimum distribution I need? Why use the QCD option when you don’t need to get the minimum distribution you want yet?
A. Taking QCD at 70 1/2 does not mean that you need to get the minimum distribution (RMD) you need. As long as you intend to make a charitable contribution in 70 1/2, there is still a tax advantage to doing so. For example, if you make a $200 charitable contribution to a qualified charity and have a marginal tax range of 22% for the year you contributed, you could save $44 in federal tax (the amount of your contribution is multiplied by a marginal tax bracket). This is because when you use the standard deduction on your tax return, there were not enough deductions to itemize the deduction, and using the QCD option will reduce federal taxes.
Q. My IRA custodian sent me a checkbook to use to make QCD contributions. Is that correct? Did I get the impression that the custodians had to send their contributions directly?
A. Use Custodian Check if it is an acceptable way to make QCD contributions. When using this approach, custodians do not need to send payments directly to the charity. It’s your responsibility. However, if you need to obtain an RMD, as shown in the previous column, you will need to send a check to the charity before you can obtain the other required minimum distribution from your IRA account. If you do that, you will receive tax deductions related to your charitable contributions.
Q. It will reach 70 1/2 in August 2025. Can I create a QCD before that day? As long as I reach 70 1/2 in the year I contribute, is the deduction acceptable?
A. No. After reaching 701/2, you must contribute. Tax deductions are only allowed after reaching 70 1/2.
Q. The column showed that QCD contributions must be made before obtaining any other withdrawals from your IRA account. Why is it necessary?
A. Qualified charitable distributions are excluded from taxable income. It also meets the minimum distribution required. If you withdraw the total amount of RMD before making a QCD contribution, you will not receive a tax deduction for your contribution. Therefore, make a QCD charitable donation before making any other withdrawal from your IRA account.
Q. I understand that interest received from my money market account will be taxed on my state’s tax returns. If I receive interest from an investment on a Treasury invoice, that interest will not be taxed in my state. Is that correct?
A. There is no state tax advantage in terms of income earned from money market accounts, and there is no state income tax on interest received from financial investments such as Treasury bills, bills, bonds, etc. So if you live in a state with high taxes like New York or California, there is a tax advantage to investing in a Treasury invoice if you can get the same return from a Treasury invoice you receive from a Money Market Fund. If you are investing in long-term investments such as Treasury bonds and bonds, and if you do not receive the investment until maturity, you should consider penalties.
Elliot Raphaelson welcomes your questions and comments at rapelliot@gmail.com.
