At Krilogy, we work with clients through all phases of their retirement planning, investment strategies, and tax strategies. A key point in this journey occurs when a client reaches 72 years old, the age at which they must begin taking Required Minimum Distributions (“RMD”) from their retirement accounts. However, in some cases the individual may not want or need this income. The good news is that with some planning there is a way to potentially avoid this requirement while enjoying numerous tax benefits as a result– That’s where we introduce the Qualified Charitable Distribution (“QCD”).

Qualified Charitable Distributions
Many Krilogy clients are community-minded, and include charitable giving as a component of their overall wealth management strategy. The QDC is a tool that can fulfill charitable commitment through RMD. Here’s how it works:

• The situation: Let’s assume that a client’s RMD is $10,000. Yet in their specific financial situation, they don’t need the money to live and they’d rather not have an additional $10,000 in taxable income to report. The client has a history of charitable giving, and plans to donate a total of $4,000 to charities of choice in the current tax year.

• The tool: Enter the Qualified Charitable Distribution. The client may donate that $4,000 directly from their retirement account as part of their RMD. This $4,000 is never recognized as income, because it passes directly from the client’s account to the recognized charity of choice.

• The result: The client receives the remainder of the RMD, $6,000, and reports this amount as income – a full $4,000 less than had they taken the total RMD of $10,000.

The Importance of the QCD in Today’s Tax Environment
The Tax Cuts and Jobs Act of 2017 created many changes in tax law. Most notably for this discussion, it substantially increased the standard deduction in 2021 to $12,550 for individuals, $18,800 for heads of household, and $25,100 for joint filers. Not to mention, taxpayers who are at least 65 years old can claim an additional $1,350 ($1,700 if using the single or head of household filing status). It’s been reported that around 90% of taxpayers took the standard deduction in 2020 and did not realize the full tax benefit from their donations. Utilizing the QCD can change this:

• The QCD is an “above-the-line” deduction, which lowers the Adjusted Gross Income (AGI) being reported on the tax return. Regular charitable deductions are “below-the-line” and an individual must surpass the standard deduction to even receive the tax benefit of their donation. This is not the case with a QCD, which just lowers the taxable income you recognize from your RMD.

• A lower AGI means that the client can potentially claim more medical expenses, because deductible medical expenses must exceed 7.5% of AGI. This minimum threshold is now more accessible.

• A lower AGI can potentially make Medicare premiums lower to avoid the income related monthly adjustment amount (IRMMA) surtax, help avoid paying social security tax, and could put the individual in a lower tax bracket.

• The taxpayer may also be able to get out of phaseouts or limitations from other deductions or credits, because of their lower AGI.

• You can start making QCD’s once you reach 70 ½ before your required beginning date (“RBD”) of 72. This could reduce your future RMD’s by lowering your account balance in your IRA, in-turn, potentially lowering your future taxable income.

We believe that incorporating the Qualified Charitable Distribution will only continue to increase in popularity as a wealth management, strategic tax planning and charitable giving strategy. The Krilogy team of wealth advisors and tax specialists can help you devise a plan to leverage a QCD for your specific situation. Please reach out with any questions you may have about this powerful planning tool.

Krilogy Tax Services serves primarily Krilogy clients who seek additional tax advice and guidance, along with tax preparation of client’s annual tax returns. Creating and managing a client’s financial picture involves a seamless connection between financial advising and tax planning. This comprehensive approach and commitment to client service is the foundation of Krilogy.

Important Disclosures

Investment Advisory Services offered through Krilogy Financial^®, an SEC Registered Investment Advisor. Please review Krilogy Financial’s Client Relationship Summary (“CRS”) and Form ADV 2A (“Firm Brochure”) carefully prior to investing.

All expressions of opinion are subject to change. This information is distributed for educational purposes only, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services, nor is it to be construed as individualized advice or recommendations suitable for the reader.

Krilogy^® does not provide tax and legal advice. Krilogy^® is affiliated with Krilogy Tax Services, LLC.. Krilogy Tax Services provides tax planning and preparation services for an additional cost to Krilogy^® clients. You should consult your attorney or qualified tax advisor regarding your situation.