Qualified Charitable Distributions

 Many older parishioners hold tax-deferred Individual Retirement Accounts or IRA’s, which probably began as 401K accounts while still working.  The accounts were funded with earnings PRE-TAX (the money was removed from your paycheck BEFORE taxes were deducted).  When you retire, these funds are used as a source of income for your expenses.  Since they were not taxed when deposited into the 401K/IRA, these funds are FULLY TAXABLE as ordinary income when they are withdrawn in your retirement.  Withdrawals can be made without penalty any time after age 59½. At age 72 (73 if you turn 72 after December 31, 2022), you are REQUIRED to withdraw a “Required Minimum Distribution” or RMD each year in an amount based on your age and the balance in your IRA.  You will be required to pay tax on this withdrawal as if it were ordinary earned income.

In 2006, a provision of the Pension Protection Act of 2006 (P.L. 109-280) established the “Qualified Charitable Distribution” or QCD. Eligibility for making QCDs from a taxable IRA begins at age 70½ .  A QCD is a VOLUNTARY withdrawal from your IRA, up to $100000 in 2023 ($105000 in 2024), which is paid DIRECTLY to a qualified charity or tax-exempt organization (like St. Katherine). The donor pays NO TAX on the withdrawal and, as a tax-exempt entity, the charity or church pays no tax either.  When you file your tax return, you can normally deduct the full amount of the QCD if you itemize deductions.  This is a “win-win” in that you can donate to the church or other qualified entity, pay no tax, and have the recipient benefit in the full amount of your QCD.  Any amount donated as a QCD in a given year is deducted from the required RMD amount for that year, up to and including your entire RMD amount (subject to the $100000 ($105000 in 2024) limit).

As always, please consult a tax professional to ensure that all the above conforms to your personal situation and circumstances before making any withdrawals or donations.