September 27, 2018

WTOP Interview: How to Use An IRA Giving Strategy To Increase Tax Benefits

LISTEN NOW! There's another way to do good and support your favorite causes while reaping tax benefits.
Dawn Doebler, MBA, CPA, CFP®, CDFA®, Senior Wealth Advisor

Interview Transcript:

Hillary Howard: It is 5:12. Making financial gifts to charities usually involves giving cash, securities or other valuables to a group of choice and now there's another way to do good and support your favorite causes while reaping tax benefits.

Shawn Anderson: Joining us live, to talk more about it, Dawn Doebler, co-founder of Her Wealth and Senior Wealth Advisor for The Colony Group in Bethesda. Great to have you back.

Dawn Doebler: Thank you, Shawn.

Shawn: So tell us about this giving strategy and how it can help us save on taxes.

Dawn: Well, Shawn, we've spoken before about tax-efficient ways to give to charity, and one of the challenges is that the new tax law increased the standard deduction for married couples filing jointly to 24,000. And as a whole, that's really a good thing, but it does mean that deductions for charitable gifts may have their tax benefits lessened or even eliminated depending on a couple's overall tax situation. But there is a way around this and that is for those who are 70 and a half years or older and require to take minimum distributions from retirement accounts. You can use what's called a Qualified Charitable Distribution or a QCD and a QCD is when you make a distribution from your IRA directly to a qualified charity. And the benefit of this is that you reduce your adjusted gross income or your AGI. In the article, we give some examples of how the numbers work, but basically, if you make the donation using a QCD, the taxable amount from your IRA distribution is reduced by the donation amount, which in turn drops your AGI. You still get a full 24,000 standard deduction, but because you don't pay tax on the amount you gift, you end up owing less money in federal tax. This is really helpful if you have a high income in retirement, for example, if you have pension income and force distributions from an IRA.


Hillary: How do we give to a charity using this strategy, Dawn?

Dawn: Well, the savings mechanism can become actually even more powerful if you reduce your AGI reduction and moves you into a lower tax bracket so it's really very powerful to do this and the way you do this is that you have to make the distribution directly to the charity, you cannot receive the money initially. And a lot of charities are really established and able to be able to help you through this, you do want to talk to your CPA. It's also important that you take the distribution and gift that to charity by December 31st in order to count for the current tax year and it does sound like it's a little bit more complicated but it's really no more complicated than you giving money or securities to a charity. You want to talk to your CPA because there are special ways that you need to report this on your tax return but it can be a really powerful saving strategy, again, especially for those who have a relatively high income in retirement.

Shawn: Alright. Good stuff. Thanks so much, Dawn. Dawn Doebler, with The Colony Group in Bethesda. You can read more about this at Search Her Wealth.

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Dawn Doebler, MBA, CPA, CFP®, CDFA®, Senior Wealth Advisor

Dawn’s experience spans more that 25 years providing wealth management, financial planning and corporate finance solutions for clients. As an MBA, CPA, Certified Financial Planner (CFP®), and a Certified Divorce Financial Analyst (CDFA®), she is uniquely qualified to understand the challenges and financial needs of clients from executives to entrepreneurs, as well as single breadwinner parents. Dawn is a weekly contributor to WTOP radio.