Don't Forget The Qualified Charitable Distribution! - Episode 92

Check out this week's episode for more on Charitable Giving via the Qualified Charitable Distribution. If you are 70.5 and not using this or if you are unsure if your parents are using this, please listen in! 

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JOSH KLOOZ, CFP®, MBA
WEALTH ADVISOR

Phone 281.719.0036
Text 281.699.8691
Fax 281.719.0156
jklooz@carsonwealth.com

1780 Hughes Landing | Suite 570
The Woodlands, TX 77380

Music by bensound.com

Transcript

Speaker 1: 0:49

Welcome in to another episode of Wisdom and Wealth. Thank you so much for joining us today. It's December and, as part of the season, giving normally comes up as we approach the holidays and clients and neighbors want to give back, and if you're like me, I try to reevaluate how I've. You know where I've given resources my wife and I have given resources over the year and even where we've given our time and where we volunteered, and so some of the guidelines that we try to set for ourselves are we want to make sure that our giving is intentional. We want to make sure that we're able to make a difference where we're giving and that you know and by that I mean we're not so spread out that the bulk of our giving is diluted because it's less in volume to certain areas. The next piece that we want to look at is we want to feel like we're a little bit stretched. You want that giving in our lives. We want that to be a little bit dear. We want it to not hurt but to restrict our lifestyle just a little bit. I find that that's good for ourselves personally, but also it makes the giving more meaningful, and I've heard it said before that there's no such thing as a former giver. You know no one else. I dare you go find someone and ask them. You know about their giving and they're not going to come back to you and say, oh, I tried that once, the point being, typically we give money to those things that we're passionate about, that we care about, and we drive a sense of purpose and meaning from our giving that far and away overcomes any amount of sadness that we might have of parting with harder resources right.

Speaker 1: 2:44

The next piece that I always encourage people, along with your annual giving goals, would be in the realm of giving of your time. I know for myself personally the stage of life we're in. It is something that I have to force myself to do. I have to be intentional about it and I've sought ways over the past year, especially to try to volunteer and give of our time with our kids. It's another way that we can invest our time together and make it rich and meaningful. But I would also admonish you that volunteering your time is one of the more underappreciated ways of giving out there in my opinion, because it just costs you time. But obviously time is the most precious resource we have, but it can be far more meaningful and a great way of driving a sense of camaraderie and purpose while you're volunteering.

Speaker 1: 3:48

So on to our topic of financial giving. I want to highlight one of the ways that I see out there that is sometimes forgotten about and can be underutilized, especially if who you're partnering with financially does not read your tax returns. We'll get to that in a minute, but it's called the Qualified Charitable Distribution, or QCD, and what this is is it is a way of giving to charity and that, once you have reached the age of 70 and a half, that you can utilize to give from your IRAs. So think about that for a minute. It might not sound like a big deal, but I'm going to unpack this a little bit.

Speaker 1: 4:32

Let's think about two separate couples. Both of them want to live off of $180,000. That's their income need, and they both want to give $20,000 to charity. So in situation one, a couple has to report $200,000 worth of income and then they give, based off of the taxes that they have to share, after taxes, to charity on tax on income that they've already been taxed on. じゃあ, number 2 only has to report $180,000 worth of income and they pull $20,000 from their IRA and they have it given directly to charities of their choice. And by doing that follow with me here they're in the 22% tax bracket. They just saved $4,400 in taxes just by that one small shift. So the reason that they're able to do that is that they're still able to have the standard deduction on top of that, so they don't have to use it as income, and then they still can file for the standard deduction and, in a sense, they're utilizing $200,000 worth of income and they're getting, call it, $47,000 worth of deductions in that instance. So it's a pretty powerful move when you think about it. And again, what would be some of the reasons that someone in option A wouldn't use it? Well, they're not aware of it. Or B, they don't understand. They'd like to give resources, but they think they're going to be giving up something in return.

Speaker 1: 6:25

The other thing that I come into contact with sometimes and this is another instance where it causes me to ask questions about your team is in a situation where someone is forced to take required minimum distributions that are greater than their living expense. So, for instance, someone has a living expense of $200,000 but their required minimum distribution is $250,000. So the qualified charitable deduction could be a way that you're able to meet, one of the ways that you're able to meet some of your required minimum distribution threshold, because the QCD, your qualified charitable distribution, counts towards your RMD requirement. So it can help you achieve that delta of $50,000 in the instance that I'm using here.

Speaker 1: 7:26

But if you find yourself having to take required minimum distributions above your lifestyle, you've got to ask yourself why is that the case? How did you get to the age of 73 and soon to be 75, and find yourself having to take out, being required to take out more from your accounts than is your lifestyle? Who were you paying to do the planning necessary to ensure that your tax planning would be such that you're not artificially having to pay more in taxes based off of IRS rules that we knew were coming, whether it was at the time, 70, 71, 72, it's continued to increase, even to the ages that we're at now. But how did you get there and why was no planning taken place? Why was no planning conducted on your behalf to ensure that you were taken care of? You have to ask yourself that question if you're being fair and you're being honest with yourself.

Speaker 1: 8:35

So the two ways in which I think that the qualified charitable deduction can be most beneficial to you are one if you are charitable giving and you don't have to pay tax on it. Right, it just makes sense. If you're 70 and a half and you're charitable inclined, please utilize the QCD for your giving. Step two is if you aren't charitable inclined but you find yourself having to take out more in required minimum distributions than is necessary for your lifestyle need, maybe consider utilizing the QCD as an option for that scenario. If you have any questions, as always, please reach back out to me about this. If there's anything that I'm passionate about, there are two subjects that I'm passionate about, it's financial giving and financial planning and wealth management, obviously. So please feel free to reach out at your leisure. I hope this has been helpful for you and I look forward to speaking with you all in the future. One last request please like, rate and subscribe to the podcast, as this helps us reach and serve additional listeners. Thank you for your time and have a great day.