[News Boquete] U.S. Expats -- reduce your taxes while funding your favorite charity

Thanks to Martine Heyer for researching this wonderful program

1. For those in our midst who are over 70.5 or 72 years old, who are the proud owners of a 401K or a traditional IRA.

   Who are thus obliged to withdraw annually a required minimum distribution (RMD) from their 401K or IRA,  this required RMD creates a taxable event for the IRS.

   Now if this person does not need the moneys they are required to withdraw, to live on, There is a wonderful option to gift the funds to charity. 

   When this person chooses to donate their required minimum distribution (RMD) from a traditional 401(k) or IRA directly to a 501(c)(3) charitable organization, then they can take advantage of a provision known as a qualified charitable distribution (QCD) and this helps them save on their tax burden with the IRS. 

   Here's how it works:

2. RMD Requirement: As mentioned earlier, participants in traditional 401(k) plans or IRA's are generally required to begin taking withdrawals, known as required minimum distributions (RMDs), once they reach a certain age (currently age 72, or age 70½ if they reached that age before January 1, 2020).
3. Qualified Charitable Distribution (QCD): A QCD allows individuals who are subject to RMDs to directly transfer up to $100,000 per year from their traditional IRA or 401(k) to a qualified charity, such as a 501(c)(3) organization, without counting the distribution as taxable income. This transfer counts towards satisfying the individual's RMD for the year.
4. Tax Benefits: By making a QCD, individuals can potentially lower their taxable income for the year. Since the distribution is not included in their taxable income, they do not receive a tax deduction for the charitable donation. However, the tax benefit comes from not having to pay income tax on the distribution, which can result in significant tax savings for individuals who would otherwise have to include the RMD in their taxable income.
5. Eligibility Criteria: To qualify for a QCD, the following criteria must be met:
   • The individual must be at least 70½ years old at the time of the distribution.
   • The distribution must be made directly from the IRA custodian or trustee to the qualified charity.
   • The total annual QCDs cannot exceed $100,000 per individual.
   • The charity must be a qualified 501(c)(3) organization eligible to receive tax-deductible contributions.

5. Reporting Requirements: Individuals who make QCDs must report the total amount of the distribution on their tax return for the year, even though it is not taxable income. The IRS provides specific instructions for reporting QCDs on Form 1040.

It's essential for individuals considering a QCD to consult with a tax advisor or financial planner to ensure they meet all eligibility requirements and understand the potential tax implications. Schwab or Fidelity or wherever your 401K or IRA is stored, can help you with this.

Additionally, it's important to note that QCDs are only available for traditional IRAs and 401(k) plans; they do not apply to Roth IRAs or Roth 401(k) plans.

 

IN Boquete we have several charities that can benefit from your 501c3 donation

 Please contact the individual organization you wish to donate to for further helpful instructions.

 

 

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