The theme this week is year-end tax-saving giving tips. I’m sharing with you how you can be generous, do good, and cut your tax bill all at the same time.

If you are taking withdrawals from your IRA, and donating money to charity from other accounts, listen closely to today’s tip, because you may be missing out on some pretty amazing tax benefits if you made charitable contributions directly from your IRA instead. 

Many investors look at the difference in making charitable contributions from their IRAs vs. regular donations to charity (i.e. writing a check) as a “six of one, half a dozen of the other” issue.

But that assumption is wrong! Every dollar you withdraw from your IRA is included in your adjusted gross income for the year. One way to avoid reporting higher income and potentially higher taxes is to send your RMDs directly to charity.  

When you send charitable contributions directly from your IRA to charity, it’s called a Qualified Charitable Distribution (or a QCD). Just by making this small change of where you pull funds to make your charitable distributions, you could be saving thousands of dollars in taxes. 

When you’re over 70 ½ and you are forced to take withdrawals from your IRA and 401k accounts, this strategy is especially powerful, since every dollar of those mandatory withdrawals that you send to charity is one less dollar that you are taxed on that year. 

So even if you’re not yet taking IRA withdrawals, talk to your friends and family who are over 70 about this strategy. I find that in practice, very few people take advantage of it and as a result often end up paying thousands of dollars more in taxes every year than they need to. 

One last point about the Qualified Charitable Distributions from your IRA. It’s important that when the money is withdrawn, that’s it’s done so correctly in order for it to count as a charitable distribution and hence, for the money you withdraw to stay out of your income. So be sure to talk to your financial institution about this before you take funds out of your IRA to give to charity.

That’s it for today. Thanks for listening. Tomorrow, we’re going to recap the week and I’m going to give you a little preview of next week’s theme. 

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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