Qualified Charitable Distributions: How to Give More - YouTube

Today's Cardinal Lesson is about Qualified  Charitable Distributions and that's a mouthful,  

or QCDs, and you say, ‘What in the  world is that and why are we talking  

about it?’ I mean the first thing I want  to do with this is get over to the “Why.”  

Like, if giving money to a specific charity,  or a cause, or...is not important to you,  

or it doesn't float your boat. Then, you can  just move on to a different presentation,  

because I'm going to show you the tax  efficient way and the tax benefits  

to give money directly from your IRA. You get  a big tax benefit from it, but in the end is,  

if you're not interested in the charity getting  the money, then this isn't going to mean a lot  

because you're not getting the money out of this  deal- the charity is. So, you know what that means  

to me is, a lot of people that are clients of ours  use this system to give more money to the church,  

or certainly give the same money- which might  have been a lot. And they're just moving it to  

the QCD variable. So that's that's the first point  I want everybody to grab on, is if you're for the  

charity, and you're for the cause of the charity,  and you get a spiritual benefit out of that or  

something in terms of your legacy, and it's  really in line with something you want to do,  

and we're getting a big yippie out of that. Then,  you're really going to like QCDs if you've got  

money in an IRA. Now, another “Why” with this  is that when you turn age 72, you need to give-  

you need to make Required Minimum Distributions  or RMDs. People that are at this age or older,  

they know what RMDs are, it's the money that  the IRS regulations make you take out of your  

IRA and pay taxes every year- it's a minimum  amount. And this is a way to get around the taxes  

on the RMD, it will lower your taxable estate. If  you have a very large estate, and it's going to be  

taxable or possibly taxable, is reducing the size  of your IRA over time- that it's a smaller amount  

when you die and then you could then give that to  charity. It's going to reduce your taxable estate.  

And then the other places, is for people of more  moderate income that use the standard deduction,  

this is a way to effectively get a tax  deduction for charitable contributions  

when in fact you're using the standard deduction  on your tax return. So I think it's real important  

with QCDs, before we get into the rules and then  the “How’s,” just to talk about the ‘Why.’ And  

we've done that, so when we get to the rules, it's  very specific. You mess one of these things up,  

you're going to, it's going to be deemed a  distribution. Not a QCD or a Qualified Charitable  

Distribution, and you're going to end up paying  taxes on the money. So it's very important  

that people get all these rules. And I'm not going  over these for you to memorize these so much,  

because you know, I know these rules.  I do the QCDs for a lot of my clients,  

just, we do it in the beginning of the year.  And we decide how much it's going to be,  

we look at the effect on their taxes, on the  size of their IRA, and then I handle all the- if  

you want to call it- paperwork. It's electronic  now. But, first rule is you need to be 70 and ½  

or older. So I'm sure that some of you that are  watching, you're 65. You say ‘Well this doesn't  

have anything to do with me for five years.’ Well  it could, and the way it could is if we're going  

to do a financial plan for you we're going to  look at the whole of your retirement.We're also  

going to look at your Charitable Giving and you're  going to communicate that to me how much you want  

to give or how much you want to give away, what  kind of legacy you want to create, and if we know  

we can start these at 70 and ½, then we can just  plan for Charitable Giving in the future. So this,  

this is relevant to everybody. People that are  younger than that, but to actually do one in 2021,  

you need to be 70 and ½ this year. And if your  spouse is 70 and ½ but you're in your 60s,  

well then we can just do the QCD this year out  of their IRA and then wait until you get to be  

70 and ½ to do it out of yours. Now it needs  to come, a QCD needs to come from an IRA.  

It can't be from a 401k or a 403b or some other  plan that looks and feels and acts like an IRA,  

but it's not an IRA. These only work out of IRAs,  so if somebody is interested in doing QCDs then  

what we're going to need to do first is take  the money that's in your 401k and do a tax-free  

rollover, custodian to custodian, to an IRA. And  then from the IRA we'll do the QCD each year.  

QCDs must be the first distribution of the tax  year. So like if you've already taken money out  

of your IRA and distributed it to yourself so  far in 2021, you can't just all of a sudden-  

man I learned about this QCD. We can't do  one now because you've already missed out on  

this. This needs to be the first money coming  out of the IRA in any given year. After this,  

you can take more money out so you want to make  note of that now if you haven't taken any money  

out of your IRA and you're 70 and ½. Then we  could think about doing one right for this year.  

Now if you have several IRAs, what a lot of  folks are not aware of, is you get a different  

note from each of your IRAs that tells you what  your Required Minimum Distribution for that IRA  

is, and a lot of folks think that you need to  take your RMD or your requirement out of each  

IRA separately and that's not the case. As you're  able, we're able, and we do this for a lot of  

clients that have multiple IRAs, as we aggregate  them all under that person and we can take  

the the distribution out of just one of them.  We can take the RMD, we can also do the QCD  

out of just one of the IRAs, and there could be  investment reasons for doing that. Now there's a  

maximum of $100,000 per year per person that you  can do as a QCD. Now that doesn't mean you can't  

only give $100,000 to charity- I mean frankly  most people don't have a real issue with this  

limit because they're going to give far greater.  I have a client every year that puts about  

$40,000 to $50,000 into a QCD, where it goes  directly to the church. We do help her for this,  

every year in January, and she has about  about a little over $1,000,000 in her IRA.  

And so she just basically donates her whole RMD,  but she is considering going to the $100,000 level  

with the QCD because she gives far more than the  $40,- or $50,000 dollars a year to the church.  

So we're, we're thinking about shifting all of  that to under the QCD, because it really works  

out very well tax wise. And then the last point  that I have up here- it's very important that  

these are handled in such a way that you've got  the custodian of the IRA, which is going to be the  

Bank, or TD Ameritrade is who we use, or Charles  Schwab, whoever is... has custody of the IRA,  

the IRA custodian. The money needs to go from them  directly to the charity. It can't come through  

you, so you can't take the distribution and then  give the money to the charity. You've just now  

violated one of the rules of QCD and you're  going to end up paying taxes on that money.  

So it's important that it's handled correctly  and then the 1099 at the end of the year,  

which the custodian knows how to do this, it needs  to be marked properly, but we always check those.  

So you know the the big point here is, there's  a way when you reach a certain age, which is  

over 70, that from then on you can give away up  to $100,000 a year directly to a charity. Never  

shows up on your tax return and the charities  obviously love this and I, you know, I'm surprised  

more people don't do this, because frankly it's my  experience that most people don't even know what  

this is. So, I hope this has helped you today. I'm Hans Sche and I thank you very much for listening.