QCD- Giving with a Purpose

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This is the Truth Network. Welcome to Finishing Wealth, brought to you by CardinalGuide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Wealth, we'll examine both biblical and practical knowledge to assist families in finishing wealth, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Wealth. The Finishing Wealth Show is a general discussion and education of the issues facing retirees. CardinalGuide.com, Cardinal Advisors, and Hans Scheil CFP sell insurance.

This show does not offer investment products or investment advice. So welcome to Finishing Wealth. We're excited that you joining us today here with my good friend and financial planner, Hans Scheil, certified financial planner actually. And today's show is actually one of my favorite topics where we're going to talk about qualified charitable distributions, which essentially it's giving, right? And part of finishing well, if that's the idea, is wow, God has been giving to us all his, you know, ever since we were born. And now we get a chance to give in so many different ways. I love the idea that in Hebrew, the letter Gimel, which is that G sound, gaga, it has to do with the rich person running after to give the poor person money. And so when King David wrote the 119th Psalm, you may know when it's acrostic. And so when he was talking about this Gimel, one of the verses that he says is I'm a stranger in the earth, hide not your rules or your good deeds from me. And so it's a fascinating thing when you think about it, that when you're a stranger, you don't, you need a map, you need to know exactly how to do things. And so today's show, by all means, is when it comes to giving, sometimes we need a map to make sure that we take full advantage of everything that God would have us do with a gift. And that's what this show is about. So you can feel the G in Gimel this morning, or as this afternoon, depending on when you're listening.

And so Hans, take it from here. What is a QCD? Okay, a QCD, qualified charitable distribution. And you know what that means is you can give money directly from your IRA to the church or missions or any other qualified charity, you can give away your IRA money, and it doesn't show up on your tax return, or it may show up on your W-2 or 1099, but it's not going to make it into the tax calculation. So it's like a deductible contribution, which is especially important to people who give to the church openly out of their just regular money that they have in savings or out of their social security check, while they're leaving their IRA money all locked up, because they don't want to pay taxes on it. If people learn about this thing, they can actually give more to the church, or even if they give the same, it's going to work better for them tax-wise. Yeah, and so this is for people that are over 70, but the show itself, right, might be for people that are in their 50s or 60s, because it's really relevant that we all are familiar with this, right?

Well, for a couple of reasons. One is part of a retirement plan is your charitable giving for people that are charitably inclined. I mean, if you don't plan to give away money in retirement, then I guess there's no need to plan for it, but most of the Christians that we're talking to, you know, both give a lot of money, and then they have a desire to give even more, and they don't want to do it so much that they keep from themselves, and they don't want to shortcut their future, but yet they have a desire to give more, and I think that's one of the things that I know I want to talk about first is we're going to get into the rules of how you do this in this second part of the show, and I'm going to go over those quite clearly, and I know these things real well, but the rules don't really apply until we really get talking about the why are you doing this, and you're doing this because you want to give money to this particular charity, and you'd like to give more money, and you'd like to see it work, and, you know, if that's not there, then I guess you can switch to another station on the radio because learning all the rules to do this when you're not even sure if you want to do it in the first place, so for people in their 50s and 60s, if we're doing a retirement plan and we're looking to the future, at the very least we can plan for this because you can't make a QCD until you're 70 and a half or you're over 70, so, and then you can start.

You can do them every year for the rest of your life, and your spouse can do the same thing, so if you're 64 or 65 and we're doing a retirement plan, well, then we can plan for QCDs out of your IRA when you turn 70 and when you're 71 and blah, blah, blah, blah, blah, so it's a planning issue, and then a lot of people in their 40s, 50s, 60s, their parents are still alive and they're getting up there in years and they start to help their parents with their money, and their parents are ready for finishing well, and just a lot of people in their 70s and 80s, they got a big fat IRA sitting there that they've been protecting and just taking the minimum distribution, and then they have some other savings and they do their donating out of the other savings, and so when they pass away, they leave this IRA to their children and their children end up with a big tax bill, so my advice for somebody in their 50s who has a mother or father or both that are in their 70s and 80s that have an IRA balance that we may sit down and talk to them about giving directly from the IRA as a QCD their savings or some of their savings or doing it year by year because it's going to have a great tax effect for the parents and it's going to have a great estate tax effect for the children who are inheriting the money down the road. Right, so my understanding, to just run us through the numbers for a second, is that, say that in my case, you know, when I turn 70 and a half, I normally give $15,000 a year to the church, so if I had taken that $15,000 now out of my income, I'd have already paid tax on that $15,000 before I ever gave it to the church, right? Correct. However, if I... Then you probably, just where we're going to stop for a sec, is if that's what you're doing and you've been giving it every year, then you've been turning it into your accountant and you've been thinking you're getting a tax deduction for it, but yet for three years when they changed the tax code a few years ago, your accountant has been putting down $26,000 as a standard deduction on your tax return.

You're not even getting any tax benefit from it, even though you think you are. Right, right. So you're essentially paying tax on this money, and even though you've given it away, you still essentially paid the income tax on it. Correct. So if I had an IRA that I'm going to make a distribution out of anyway, and again we can say the one rule is we know it has to be the first distribution of the year, and if you're going to do this QCD, if we gave the money and we knew that it was $15,000 coming right out of the chute, then immediately, right, I just got $15,000 out of my IRA and didn't pay a penny tax on it, right? Exactly. So therefore you could say, and you'd still have the $15,000 of already paid tax money, you'd still have that in your possession because you didn't give it away, because you gave the money away out of the IRA. So because of that, because you've gotten a tax benefit, some people are going to decide, now that I've realized how easy this is, if they've got a $300,000, $400,000, $500,000 IRA, they're going to say, well, maybe we're going to give more than $15,000, and we're going to just make this decision every year, but we're not going to have this tax bill coming from required minimum distributions. And that's exactly what it is. And it's just amazing to me how few people really know about this, okay? Yeah, I mean, it's an absolutely beautiful thing. And, you know, I just want to add that when we talk about the rich people giving to the poor people, well, those of us who know Jesus, I mean, that we're rich spiritually, right?

And so, you know, part of what we're doing when we're giving to the church is we're trying to give that wealth, which we have spiritually, to those who don't have it, and being able to give to, you know, your individual church and those kind of things. So this, to me, is just like, wow, you know, what are the tax brackets these days for somebody that's making $80,000, $90,000 a year? Hon's like 30%?

Well, it just depends whether they're married or not. And, you know, the brackets are pretty much in the low 20s, and then they get up into the 30s pretty quickly when you get up over 100 grand. Well, let's just say that it's 20% percent. Well, if you got $10,000 that you were given, then obviously, you know, there's another $2,000 that you had as a result of not paying that tax, right?

Well, sure. And so, I mean, it effectively allows you to take, make tax-deductible contributions from your IRA, or tax-free, not taxable, and yet still claim the $26,000 standard deduction for a married couple over 65. So it's like you're getting the credit for the giving on the one side of the tax return, and then you're not paying taxes for the income where the income came out of the IRA. And by the way, these count as RMDs, as required minimum distribution. So if you don't like the tax on your RMDs, you could just do your RMD every year as a QCD.

How's that for using two acronyms in the same sentence? The required minimum distribution and qualified charitable distribution, right? Well, we have some clients that do that, that I can think of a lady, and she gives a lot. I mean, we have this discussion around the $100,000 a year maximum. That's the most any one person can give out of their IRA. And I can remember sitting in her office two different times and giving somewhere between $40,000 and $45,000, doing a QCD and just doing it, make sure it's done right, and having a discussion, well, if you wanted to give $100,000, well, she gives a lot of money separately from the RMD. And I was trying to impress upon her, let's give the whole $100,000.

Let's move all you're giving over here under this. And then you just hang on to that other money that you're giving out the after-tax money. And so this makes real, very much financial planning, tax planning sense. And then the most important part about it is the charity and God wins.

Yeah, exactly. In other words, God has given it, and now he's given us an opportunity to leverage that. And so, you know, today's show, Qualified Charitable Distributions, of course, is in Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, which is there at cardinalguide.com, which, you know, sponsors this show for us. And you can get that book easily by just emailing Hans, which is right there at cardinalguide.com. And of course, there's a video that even has a board that shows more details on this QCD that's there at Hans' YouTube channel, which is, Hans, what is it?

It is just cardinaladvisors, two words, and the advisors is O-R-S, A-D-V-I-S-O-R-S. So there's his YouTube channel to see the video. All this stuff is out there to get the details. But like I said at the beginning of the show, you know, we're asking God to give us a map. Well, we got Hans right here to help us. If you want to step up your CD, you should go to cardinalguide.com. When we come back, we're going to get into a few more of the details of how all this works.

Stay tuned. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, I-R-A, social security, Medicare, and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. A welcome back to Finishing Well. With Certified Financial Planner Hans Scheil, today's show is on the qualified charitable distributions. And, you know, I know that's a mouthful, but obviously it's made for a great topic because it's ways that God has allowed us to be able to leverage as much as possible for our money for the kingdom. And so Hans, I guess we can start out with a little bit of an explanation about that again. I mean, so we started on the last show, the last segment of the show. We wanted to really get into the why, and I think we did. And we really wanted to talk about why are we doing this? Why do we need to learn these rules?

Why are we doing a QCD? And I think we've covered that. And now I'm going to go over the rules, okay? And what I want to say in positioning the rules is this is just a short summary that I put together so I could talk intelligently about the rules.

When you get what I pulled this from, it's probably 10 to 12, 15 pages long of IRS taxable stuff. So what I want to tell people is don't necessarily try this at home. I mean, you need to go to a competent financial professional, and you need to check with your financial professional, do you know how QCDs work?

Have you ever done any of them? And because it's possible for them to make a mistake on it, too. And you break one rule, the QCD gets disallowed, you're going to have to pay tax.

You're going to have to pay tax on the money. First rule is you've got to be 70 and a half years old. But I have a number of people on my YouTube channel that make comments.

And when I'm telling them about QCDs, I have people come in and correct me on a number of things. And people say, oh, that's not 70 and a half anymore, Hans. That's 72. And I try to answer them real nicely, but it's not 72.

It's 70 and a half. So the SECURE Act changed the start date for required minimum distributions to 72. So you don't have to do a required minimum distribution until age 72, but you can do a QCD starting with the old age, which is 70 and a half.

And so that has remained the same. And so you can really slip in two QCDs before you really get to real RMDs, the required minimum distribution. That's the first rule.

It's got to be 70 and a half. Second rule is the QCD needs to be done from an IRA, not from a 401k or 403b or some other plan. It needs to be from an IRA. Now, if you're interested in doing these and you've got a 401k, we can roll a 401k over to an IRA or just enough to do a QCD and then make the QCD from the IRA. But it needs to come from an IRA.

The QCD must be the first distribution of the year. And this is one that people get caught on. So let's say you're hearing this. You say, man, I want to do these. That sounds great.

So let's go. I mean, one of the first questions I'm going to ask you is it's August. Have you distributed any money out of your IRA so far this year? And if you have and it wasn't a QCD, then guess what? You can't do a QCD for 2021. So all your QCD distributions need to be the first money coming out of your IRA for this tax year.

So in other words, we need to be doing this in January so that you don't get caught up on that rule. Next one is if you have several IRAs and they're all in your name and they're all traditional IRAs, they all have required minimum distributions or RMDs, you can take the QCD out of just one of them. You don't have to apportion this to all your IRAs.

And some people like that because they just maybe want to leave alone some of the funds that are doing well or for whatever reason. You can take the money out of one of them, and it really counts against several of them. There's $100,000 per year maximum per person. So this lady I was talking about earlier in the show, her husband has quite a bit of money as well. So he would have up to $100,000 in any given year that he can do as a QCD, and she does as well.

For most of our clients, that's not really a problem. And then the next one is it needs to be a direct transfer. The money needs to go directly from the IRA to the charity. It can't come to you, and then you give it to the charity. If you do it that way, you're going to end up paying tax on the money. Okay? You got all that, Robbie?

I got it, but again, this is why we don't try this at home, I'm guessing, that there's some issues there. But again, the big benefit, obviously, is, as we talked about in the example earlier, you know, it's literally thousands of dollars of tax that you can leverage back to the charity that you wanted to give to because you didn't have to pay the money in taxes. Well, yeah. I mean, I just think of this guy that he's been a client for us probably nine, ten years, and then I was out calling on him with one of our salespeople way down east, as we say here, almost to the coast in North Carolina, a small town, and we're sitting at his table, and he's grumbling about minimum distributions, having to take them, because he really doesn't need the money to live. And, you know, he's got about 270 grand in his IRA still, and he was about 77, 78 at the time, so he's probably in his early 80s now, and every year we help him with his QCD, and his QCD is up to about 10 grand, maybe 11 or 12 grand, and what he does is he just takes his required minimum distribution, and whatever that amount is, he rounds it up to the next thousand just to make sure we don't have any math errors, and he does it as a QCD. So that IRA is just sitting there, and it's always giving to the church, and as it's giving to the church has increased, he doesn't really need the money in the IRA to live, because they live just fine off their two Social Security checks.

You know, people, a lot of people in their 80s in a small town in North Carolina, they just, they don't spend a lot of money. And where they have savings is his plan is to leave his savings to his children, you know, first to his wife if he goes first, and then she's going to be in the same situation, maybe only with one Social Security check, but, you know, they live on, and then the money that they inherit to the kids is going to be the nonqualified savings, so the kids don't have to pay tax on it. And his plan with this IRA is to have it be empty by the time he and his wife pass away, and have the annual things go to the church.

He's just happy as he can be. Yeah, and so that's, you know, here clearly is, you know, some people are, you know, talking about 40 or 50 thousand dollars, but other people, right, they're doing QCDs as little a thousand fifteen hundred, right? Oh, sure, I mean, I have plenty of people that have, you know, 90 thousand dollars in their IRA, and they're 75 years old, and they live off their Social Security, and they're, you know, just that IRA is sitting there, the QCD on a 90 thousand dollar IRA for a 74 year old is really going to be about 3,800 bucks, something like that.

And so, a lot of them, I should say, if you keep doing only the minimum distribution for your QCD, then you're going to pass away, and you're going to still have a balance there. Now, if you make the church your beneficiary, that's one way to take care of that, but I think you'd be wiser to do a QCD for what you're doing it for, like the 4,000, and then go ahead and take out another 6 to 10 thousand, and just stick it in the bank, because you're not going to pay any taxes on it, and then, because your income is low enough, and then, now you're going to just have some money that you can leave to your kids, or you can spend on something when you're older, or have as a savings account, and you don't have any tax consequences. So, there's a lot of people under withdrawing from their IRAs, and they're just not taking enough out of them, and then, when you get in, and you find givers, which most Christians are, once they find out about this, I mean, I promise you, your church is going to love that thousand dollars if you do a thousand dollar QCD, and I do plenty of those for people as well. I want to reiterate what you said a minute ago, because it seems, how cool is it that, right, her income is so low that she can make a distribution over the minimum distribution, just simply put the money in the bank, never pay tax on it, and so, like you said, when she moves on, or whatever happens, the money would never pay any tax on it, but if she left it in the IRA, and then, all of a sudden, somebody inherits this big whopper of $80,000 or whatever, then the taxes do on it, right? Well, right, and then they want the money, and maybe they're making $50,000 at a job, and then the 80 gets added on top of the 50. Now, for that tax year, they got an income of 130, and so, a whole bunch of the IRA is just gone, whereas if she'd start planning for this, I mean, what just came onto my heart is what's lacking for most people is a retirement distribution plan, and even if you're 75 or 80, it's not too late to get in touch with me, and we'll just look at all your savings, including your IRA, and we'll put together a plan for distribution, and the charity gets so much, you get so much, the tax person gets so much, and then your children get so much at the end.

Not really that complicated to do, so that's what we do, so it's really a plan for the rest of your retirement, and to put your giving right into that, and then let's make it tax advantage giving. Darrell Bock Right, and so, I think about the gentleman that he was grumbling about this required minimum distribution. Well, boy, thank goodness that that happened, because it kind of opened his eyes to the fact that he's got to empty this thing out, or he's going to have a problem for his inheritance, right? David Morgan Yeah, and he's the guy that's given more. I don't think they were given 10 grand a year to the church.

I think it was more like three or four or five before he discovered the QCD, and so he doubled his giving, and he reduced his tax bill. Darrell Bock Cool. Like we talked about in the beginning, God wins, and the church wins, and ultimately, so many more people get to know about Jesus, and what a beautiful thing this really, really is, and so if you need to know more about this, obviously, I mean, you can hear, just like David said, give me a roadmap to do this.

Well, you're listening to Finishing Well today. You can contact Hans at cardinalguide.com. He would love to help you, or his book, The Complete Cardinal Guide to Planning for a Living Retirement, you know, all these things, all these resources, you know, that are there for you to take full advantage of the resources you work so hard for, right, Hans? Hans Schuyler Oh, yeah.

I mean, I love what I do, and just to see it in people when they all of a sudden get it, I mean, it's nice. Darrell Bock So wonderful. Thank you so much for listening and spending time with us today on Finishing Well. Thank you, Hans.

Hans Schuyler Thank you. Darrell Bock Finishing Well is a general discussion and education of the issues facing retirees. cardinalguide.com, Cardinal Advisors, and Hans Schuyler CFP sell insurance.

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