This charitable giving strategy 'almost always' provides the biggest tax break, advisor says – CNBC

If you're retiring and planning year-end donations to charity, there are important steps you can take to make the most of your tax breaks, financial experts say.

A qualified charitable distribution (QCD) is a direct transfer from an individual's retirement account to their retirement account. non-profit organization. Additionally, retirees can: Contributing even more in 2024According to the I.R.S.

Sandy Weaver, a certified financial planner and owner of Weaver Financial in Mission, Kansas, said this strategy “almost always has the greatest tax advantage” compared to other gifting options. She is also a certified public accountant.

To qualify for QCD, you must be 70 1/2 years of age or older. If you are eligible, you can Transfer up to $105,000 Thanks to the changes made by Secure 2.0, you can get $100,000 out of your pre-tax IRA in 2024, up from $100,000 in years past.

In 2025, that limit will increase to $108,000, according to the IRS.

Due to the increase in the basic deduction amount from 2018, Only about 10% of filers Itemized in 2021, according to the latest IRS data. This means that most filers do not claim the charitable deduction.

Although there is no tax deduction for a QCD, “it's better than a deduction because the amount distributed is excluded from income,” said CFP Juan Ross, partner at Forum Financial Management in Thousand Oaks, California.

If they are eligible, they should first do charity work through QCD, he said.

One of the main advantages of a QCD is that the transfer does not increase adjusted gross income, experts say.

A higher AGI can trigger an income-related monthly adjustment amount (IRMAA). Medicare Part B Weaver then explained Part D premiums.

In 2024, retirees can expect their premiums to increase if their modified adjusted gross income (MAGI) exceeds $103,000 for single filers and $206,000 for married couples filing jointly.

There is a two-year look back, so your 2024 premium is based on the MAGI from your 2022 tax return.

Another benefit of QCD is that you can offset the annual cost through transfer. Ros says you need a minimum distribution (RMD) to help lower your AGI.

Pre-tax IRA balances are increasing in 2024 due to stock market highs, which could mean increased RMDs for some retirees. of Average IRA balance As of June 30, the amount was $129,200, a 14% increase from a year ago, according to a Fidelity report based on 5.8 million IRA accounts.

Starting in 2023, most retirees will be required to take RMDs from their pre-tax retirement accounts starting at age 73.