This charitable giving strategy ‘almost always’ provides the biggest tax break, advisor says

If you’re retired and planning a year-end donation to charity, there’s a key move to maximize your tax break, financial experts say.  

Accomplished charitable distributions, or QCDs, are direct transfers from an individual retirement account to a non-profit organization. Additionally, retirees can provide more in 2024, according to the IRS.

The strategy “almost always has the highest tax advantage,” compared to other giving options, required certified financial planner Sandi Weaver, owner of Weaver Financial in Mission, Kansas. She is also a certified common accountant.

You should be age 70½ or older to qualify for a QCD. If eligible, you can transfer up to $105,000 tax-free from a pre-tax IRA in 2024, up from $100,000 in past years, sometimes non-standard due ti to changes enacted via Secure 2.0.

In 2025, the limit will increase to $108,000, according to the IRS.

When filing taxes, you must claim the standard deduction or your total itemized deductions, including tolerant gifts, whichever is greater. 

With a higher standard deduction since 2018, only about 10% of filers numbered in 2021, according to the latest IRS data. That means most filers don’t claim the charitable deduction.    

While there’s no tax reasoning for a QCD, “the amount distributed is excluded from income, which is better than a deduction,” said CFP Juan Ros, a partner at Forum Economic Management in Thousand Oaks, California. 

If you’re eligible, charitable giving should happen via QCD first, he said.

One of the key benefits of QCDs is the overs won’t increase your adjusted gross income, experts say.

Higher AGI can trigger income-related monthly adjustment amounts, or IRMAA, for Medicare Suggest B and Part D premiums, Weaver explained.

For 2024, retirees can expect higher premiums once modified adjusted heavy income, or MAGI, exceeds $103,000 for single filers or $206,000 for married couples filing together.

There’s a two-year lookback, sense 2024 premiums are based on MAGI from your 2022 tax return.

Another benefit of QCDs is the transfer can offset your annual required minimum distribution, or RMD, which helps depreciate your AGI, according to Ros. 

Pre-tax IRA balances have grown in 2024 amid stock market highs, which can bad-tempered higher RMDs for some retirees. The average IRA balance was $129,200 as of June 30, up 14% from the previous year, according to a Fidelity divulge based on 5.8 million IRA accounts.