Dear fellow practitioners, CPAs, attorneys, and other professionals, welcome to the nineteenth edition of our “Dreidel” newsletter about planning and investment issues of US citizens living overseas. This month Mike Reed discusses Qualified Charitable Contributions.

On Required Minimum Distributions (RMDs):

As 2025 comes to a close, many people with retirement accounts start thinking about Required Minimum Distributions (RMDs) from their IRAs and other retirement accounts.  For people who reach age 73 this year they will have to do their first RMD which is around 4% of the account balance of 12/31/2024.  As for others who have already started their RMDs, they will continue to do so based on the IRS table for withdrawals. 

However, for people who are charitably inclined, there is the option to have their RMD sent straight to a charity of their choice as a Qualified Charitable Contribution (QCD).   The advantage of this is that the distribution from the IRA does not show up as income on the person’s tax return, saving taxes on that amount. This can be a powerful tax planning tool for people who do not need to use their RMD for expenses and are looking for tax relief.

Of course, like any tax break, there are rules that need to be followed:

Firstly, the QCD must come directly from a person’s IRA and go directly to the charity. This can be done by directing your custodian to send a third party wire or check directly to the charity. 

Next, the charity must be a qualified 501c(3) and you cannot benefit from the donation. Each person can donate up to $108,000 and this will count toward their RMD; married couples could each donate $108,000 from their respective IRAs, for a total of $216,000

On the planning end:

One tax planning idea that arises from the QCD rules, is that a person can execute a QCD at age  ]70 ½ even if their RMD does not need to start until age 73.  The advantage of using the QCD before your RMD starts, is that it lowers the balance of your IRA, which in turn could help keep your RMDs lower, which could result in lower future reported income and a lower tax bill. We suggest to work with an advisor and tax professional who could help you plan and do the analysis to see if this could be a benefit.

One last tip when it comes to QCDs:

When your custodian sends out the 1099R showing the withdrawal from your IRA, it will not show how much of your RMD was withdrawn as a QCD, so make sure you keep good records and that the QCD is properly reported on your tax return!