A financial expert explains the benefits of qualified charitable distributions

HUNTSVILLE, Ala. (WAFF) – To get the money moving this year, a financial expert from The Welch Group shares ways to donate without putting too much of a dent in your portfolio.

They gained popularity after the tax law changes in 2019. They are used when generous people want to give financial gifts to causes they are passionate about. Qualified charitable distributions are charitable gifts that are made directly out of your pre-tax retirement account.

Certified Financial Planner Marshall Clay explains more about how it works.

“It comes from an IRA or a rollover IRA or something of that nature,” Clay said. “There is an annual rate. Now, most people don’t reach this limit, but there is a $100,000 limit that people can give out of their IRAs each year.

A small change has been made to the law, which will index it to inflation from next year. Clay explains how these pre-tax charitable gifts can count toward other distributions if you’re of a certain age.

“It could potentially count toward required minimum distributions if you’re age 73 for 2023,” Clay said. “So there are some very valuable aspects to this type of donation, and it’s grown in popularity over the last few years because of the increase in the standard deduction on the back of Trump’s 2019 tax cuts.”

Another important thing to note is that not all charitable gifts are deductible. This is something that a financial planner said is an eye opener for his clients.

“So many people don’t realize that their regular small gifts and charitable donations don’t actually give them a tax break,” Clay said. “Because they’re ultimately offering a standard design. So a qualified charitable distribution actually helps you overcome this problem because it’s not considered a charitable deduction, it’s actually an exclusion from income. “

Excluding income is better for your overall portfolio and your wallet. The financial guru explains why this is the case with a daily example.

“If you decide not to take a qualified charitable deduction and take, say, a $10,000 charitable donation because the standard deduction is too high, you only start itemizing your deductions if you exceed the standard deduction. said Clay.

He goes on to say that this is where people start making common financial mistakes.

“Here’s where I see people go wrong is they donate $10,000 to charity, but they’re limited to a $10,000 state and local tax deduction,” Clay said. “Maybe they’re lucky enough to pay off their house, so they don’t have any mortgage interest deductions or health care deductions. So they have $20,000 in deductibles. So they get the standard. “

Clay also blurs the distinction between donations and distributions.

“So this charitable donation doesn’t give you a tax break,” Clay said. “While a qualified charitable distribution, it helps you avoid paying income tax on that distribution.”

For more ways to be financially aware, check out The Welch Group website.

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