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Share it. But most of all, thank you for listening and for choosing the Truth Podcast Network. Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Well. Welcome to Finishing Well, a certified financial planner, Hans Scheil. And today's show, we're talking about charitable distribution from your IRA with no income tax. And you may have even heard us talk about that being a QCD and a qualified charitable contribution. But the thing I've always thought about that, and I'm really excited we're going to talk about it in detail today, is that there's great wisdom involved. And I think you're going to see that in ways that you can leverage your resources for the kingdom in amazing ways. And I've always loved in Leviticus 19 this idea of gleaning the fields, of not gleaning or taking every last grape off your grapevine, because there might be a stranger come by that's hungry, or they would leave the edges of their fields ungleaned so that the poor could come and get—in other words, they had stuff out there so that the poor could actually work in order to get food, right?
To allow them some of their self-esteem because they did something for what they got. And I always thought it was tremendous wisdom. And the more I've thought about these QCDs in the past that I really think that, you know, it's one of the ways that God has really used this show and obviously Cardinal Guide in order to further the kingdom, because this is really an amazing way to leverage your money, isn't it, Hans?
Well, it is. And I mean, let me just go at this from if you are already 70 and a half, or your spouse is 70 and a half, or let's just say you're over 70, and you have money in an IRA that's not a Roth, which covers a lot of people, you have substantial money in an IRA, or if you don't, I mean, you know what, some people might look as unsubstantial, it's still what you have, and you have never paid tax on it. And you're coming up on minimum distributions, or you're already there. And you can give your minimum distribution to the church every year. You can give more than your minimum distribution if you choose.
You could give less than your minimum distribution, you just give part of it. And there's not going to be any income taxes paid on that, because the church doesn't pay taxes, or the qualified charity does not. So you do. And so, I mean, you think about a lot of churches, and a lot of their congregation, and participating congregation are older people. And these older people, a lot of them, if they really knew about this, it would be an easy way for the church to raise money, and their missions program, or whatever the people want to direct it toward.
And so, let's talk a little bit about this. So the abbreviation, or the acronym is QCD, and it stands for qualified charitable distribution. And it means you have money in an IRA, it's not a Roth, but it's a traditional IRA. Or you can't do this from a 401k, but you can take your 401k money, roll it over to a Roth, roll it over to an IRA. And then from the IRA, you can do QCDs. So, and there's some rules around this, as I always say, don't try this at home. I mean, get some help, because if you if you mess something up, you're going to end up paying taxes on the money.
Okay? You need to be 70 and a half to do this. So we have some people in their late 60s, just setting aside money in their IRA, that they're going to do a QCD when they're 70 and a half.
So at least they're, they're planning for QCDs, when they can't actually do one yet. But you have to be 70 and a half. The QCD limit is $105,000 per person per year. And by the way, that isn't a problem for most of our clients is that we don't have people that come and say, well, gee, I wish I could give away 200,000. But the IRS will only let us do that. And so, the IRS will only let me give away 105,000.
I mean, we've done very few QCDs of the maximum size. So I just point out the limit that if you want to give your whole IRA, if it's larger than that, you're going to have to wait till you pass to do that. But on an annual basis, once you're 70 and a half, you can give up to 105,000 per person per year directly out of the IRA. This satisfies your RMD for the year if it's done properly. So you no longer have to, or in addition, you don't have to take what is known as the RMD.
We have other shows where we talk about how to calculate that. The IRA owner or the beneficiary can do a QCD if the IRA owner was 70 and a half. If you're the beneficiary, you can actually do a QCD from the inherited IRA. Only for an IRA, not a 401k, 403b, or 457. So you can't do this out of your 401k.
I said that earlier. So you would need to roll monies out of the 401k into an IRA. And then from the IRA, you can do a QCD. The money must go directly to a qualified charity.
You can't take the check. You can't receive the distribution and then later donate it to the charity. The money has to go straight from the IRA to the charity. And you can do it with multiple charities. So you could do 10 of these if you wanted and the money could go to 10 different charities.
It's just very important that it's handled properly. Right. And then doesn't it have to be the first distribution of the year too? To count as the minimum distribution? Yes. So if you've been taking distributions earlier in the year, and then like this year, if you've already taken some distributions, and now you want to do a QCD, you can do a QCD.
But you can't count it as your minimum distribution because it wasn't the first one of the year. So like I said, come to us with these situations or another professional that's really spiffy on these. And, you know, we'll, we'll help you get it right. And, you know, I'm available to speak to some church groups. I mean, if we get all the seniors together, this is a wonderful way to raise money for a church. And, you know, frankly, if people want to give a large donation to the church, while they're still alive, and they're up there in years, and they're beyond 70 and a half, this is the way to do it. I mean, you take pre-tax money, donate it, and you never pay taxes on it, and your heirs won't either.
Right. And even, you know, if you are tithing right now, you know, and that's what you normally do, and you're in this situation where you have this IRA, you know, if you just simply took your yearly tithe and made it this distribution at the beginning, you know, then you could go ahead and, right, you know, use your other money for other things, but that tithe comes out tax-free. And so, as you, you know, if you're tithing money that has been taxed, you know, you're missing out on that whole percentage of whatever you're paying taxes, right?
Absolutely. I mean, people are holding on to this IRA money, because they just don't want to pay taxes. Or maybe it's the only money, significant money, that they've saved in their lifetime, and they're real proud of it, and they want to just protect it. You know, and I get with a lot of people, I ask them, well, what's it for? I mean, what's this money really for?
And a lot of people have trouble answering that question. They say, well, you know, if I need long-term care, then I know that it's there. Well, then we probably ought to talk about getting some long-term care insurance that we buy with IRA money.
Okay. And that would, probably wouldn't need your whole IRA. I mean, but then if somebody says, you know, it's really, I'm just going to give it to the church or give it to God. Well, then, if that's what the program is, let's start doing that way, you're still alive, and you can see the benefits of your work.
Yeah, we're going to plan out something that's simple. If you tell me you're going to give it to your kids, I would rather see you give your kids other money if you have it, or land, or something they're not going to have to pay taxes on. And I'd like to give this pre-tax money to the church.
Yeah, absolutely. And if you're going to give it to the kids, there's so many cool ways to get them money, or I think, you know, the different life insurance products in all sorts of different ways. To get them tax-free money that really was one of the big launching pads for your, really, your whole business, right?
Well, it was. My mother-in-law, when she passed away, I mean, we received, or my wife did, like a percentage of her IRA. And then looking through the whole matter, she left a sizable amount of just regular money to the church, which was very good of her. And that church has been just beneficial in their whole, their whole life down in, you know, in the rural area. And so it's great that she left the church money, but she could have reversed all that very easily and given the IRA money to the church, even given the church more money through the IRA, of which the church wouldn't have paid taxes, and given that money that was after-tax money that she left to the church to all the kids, then everybody would have been better off. The church would have gotten more money, and then the kids would have gotten more money that they can keep because they wouldn't have had to pay tax on the distribution.
So, I mean, you learn these things. I didn't tell that to everybody because it's just nice that everybody got a benefit. But in planning my own stuff and helping my clients plan, I mean, we just, if you're going to direct money to the church or to a charitable beneficiary, let's do that with the pre-tax money.
And let's save the after-tax money for the other people that you care about, for the real persons. This is a good time to remind you that our show is brought to you by Cardinal Guide, cardinalguide.com, and as we're talking about IRAs today, we're talking about distributions and IRAs. There's seven worries tabs at cardinalguide.com, and this one is under the IRA worry tab, and there you're going to see a video that was done along these lines, the same exact title, and, you know, there's show notes and all the things that we've been talking about in detail, but, of course, from my standpoint, still the best thing to do is go to the contact page at cardinalguide.com and get a hold of Hans or get a hold of Tom, you know, so they can customize this thing to your particular situation. And, of course, there at Cardinal Guide is also Hans's complete cardinal guide to planning for and living in retirement, and so we got so much more on this whole idea of QCDs. I think it'll come in a focus for you as you begin to understand what wisdom this is, so we'll be right back with a whole lot more. It's charitable, just charitable distributions from an IRA with no income tax.
We'll be right back. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with certified financial planner, Hans Scheil, and today's show we're talking about charitable distributions from your IRA with no income tax, and it's no income tax for either the person sending it or the person receiving it, and so the government gave us this. And the application of that, I'll think you'll see the wisdom as we share some more stories, you know, of our case studies, however you want to put that, of what actually goes on, Hans.
Yeah, so let's talk about this one that's just happening right now. This fella, unfortunately, got diagnosed with cancer, and it's a pretty terminal situation, and I'm not sure, it's a couple years old now. He's had it for two years, and he's going into the final parts of it, and we've helped them a lot and advised them with, they have a substantial IRA, and then they also have substantial non-qualified or money that they've saved and invested that's outside of an IRA, and we've helped them a lot with Roth conversions and planning so that they're both well taken care of. And when we initially did the work for them, I evaluated the trusts, I just read the trusts, and they looked very good to me. I mean, it just, yeah, at the time, I think, I'm not sure if they picked up on this, but they thought the trust covered all their assets, and then I pointed out that about 60% of their financial assets are in IRAs, and they're not included in the trust. They're going to pass by beneficiary, but they asked me, they're going in to see the lawyer they've already been, and they asked me to read the trusts again and to look and just see if there was anything that I wanted to comment on that they should talk to the attorney about that they could go ahead and change now while they're of sound mind and anticipating that he's not going to be with us in some, probably less than a year. And so I did that, and I saw where they were leaving in the trust, when the second one of them passes away, two-thirds of the money goes to their children and one-third goes to their donor advised fund, all of which we've helped them with is going to the church, and which is very generous, and that's the way they set these trusts up about 10 years ago. And I suggested to them, why don't you leave 100% of the money in the trust to your kids and then leave all of the remaining IRA assets, the taxable, the pre-tax, that's not converted to a Roth, IRA money to the church, or maybe not all of it, but more than you would have left them through the trust, and that's going to be taxed better for everybody because, you know, when a church receives, or a qualified charity receives IRA money as a beneficiary, they don't pay any taxes, they just get the whole amount. And when your kids receive IRA money as beneficiaries, they're going to have to pay taxes, they thought it was a great idea.
So anyhow, and they went in and explained that to the lawyer, and my assumption is that they're making those changes, and then we're going to be back and we're going to help them with beneficiary changes. Yeah, essentially the same kind of idea that in reality, the kids get more money and the church gets, and without a tax, right, because if the kids had gotten the IRA money, obviously they'd have to pay tax on it, but the kids get more money because they're getting it tax-free. The church is getting, actually in this case, a little bit more money too because of the IRA is the size of that, right? Yeah, the church doesn't care what the flavor of the money is.
It's just, they don't. I mean, it could be pre-tax money, it can be post-tax money. That's why you don't want to leave Roth IRA, you don't want the barren fishery to be a charitable beneficiary. So I made that real clear to them is that the Ross we're going to leave to the kids because the kids inherit it and they don't have to pay taxes, and the pre-tax money we're going to leave to the charity. And they were very happy about this. It's very important to leave a lot of money to the church. So, and missions, they have a whole bunch, a whole list. And so it's rewarding to me to be able to just sit down and help them give to the kingdom and look after their family after they're gone.
So, okay. So some of the examples we had in the video, like the first example, we have Christie who's age 80. She has a $250,000 IRA account. She uses the 16,550 standard deduction when she does her taxes. So she's not going to get any tax benefit from a charitable contribution. And she gave a $5,000 gift to the church through QCD. And so that probably saved her $2,000 in taxes. It didn't save the church any taxes. They were going to get $5,000 any way you shake it, but it saved her. If she would have done that out of after-tax money, she would have had to make probably $7,000, $7,500 to pay the taxes and give $5,000.
So it's a pretty simple example. Yeah, but when you put your mind to that, it just goes to show you that, yeah, if you're using pre-tax money to give it to the church, there's a percentage the church is getting that they would not be getting, right, if they had to pay tax on it as well. What I've seen once we help people with fees and they really just see how there's no tax on this thing, they have a tendency to do it next year and the year after and the year after. They start an annual giving campaign out of their IRA just because they see how much census makes.
So now we look at example two, John's age 75. He's of a high net worth. He has a gross income of $100,000. He, because that's what he needs to live on, even though his net worth could generate a lot more money, he's got things set up so that his gross income is 100 grand.
He avoids, and he's done that to avoid Irma and to pay that extra Medicare thing and to pay lower taxes on his social security. He's kept his income in some reasonable bounds and he wants to give $100,000 to the American Cancer Society and he does it straight out of his IRA under a QCD. I mean, it's just, yeah, and you could say, well, why wouldn't you do this just on your regular income?
Well, you do all the math on everything. That wouldn't get him that much of a tax deduction, but this way he didn't really get a deduction. It's just that he, that's $100,000 of IRA money that there will never be any taxes paid on. So, and, and well, that brings up a question that I wondered, like, obviously after the selection, one of the things this selection is going to help decide is what the taxes are going to be in the upcoming next four years, right? And so is it, is there some reason to try to do this before the tax structure changes? Because the itemized deduction thing is going to completely change, isn't it?
It is going to change, but I, yeah, I mean, I mean, you could make a case of that, but this thing is pretty well grounded. I mean, a lot of people think that to get a new president, they're going to change the taxes. And they're both saying that, you know, both sides are saying that, and it isn't that easy to change the taxes. You got to get Congress behind it, both houses of Congress, and they got to pass some of it with like a 60% crowd, and then they got to get the president to sign it. And it is, so I don't put a lot of faith that the tax code is going to change much, other than the fact that it's going to revert back to the pre-2018 deal, because that's the current law. But I don't want to shoot down your idea, but it wouldn't hurt because we know what the taxes are going to be this year, and how QCDs work, and how the standard deduction works, and all that kind of stuff. And we are uncertain beyond the year 2026 and beyond. So I'm going to give some credibility to that statement.
You could act soon, and we know what we're dealing with, okay? Yeah, absolutely. So in the third example here, Mary and Jack are 78 and 75. They have a gross income of $150,000. They have an RMD required minimum distribution of $40,000 between their both IRAs. They give, they tie it to the church $15,000 annually. They do a QCD of $55,000, and included in that is their church tithe, and they're going way beyond their tithe, but they're covering their RMD. The church is getting their money, their extra money, and beyond the RMD. They're avoiding IRMA. They have a lower Social Security tax, and they're tithing from before tax funds. That's just a sweet deal to me. Yeah, I hadn't really thought about the, right, the idea of IRMAs and all those things.
It's like you always talk about. It's like, you know, all these things mixed together into a really big soup, don't they? Well, yeah, if they have a gross income of $150,000, and if they add their RMD of $40,000 to that, their income would go to $190,000. So they're going to pay a lot more taxes on that extra $40,000. And it probably wouldn't quite push them into IRMA, but it's going to create more taxes on their Social Security. And then with their tithe, if they're doing their tithing out of the $150,000 of gross income, which I'm assuming they are, they're not getting a tax deduction because they're taking the $32,000 standard deduction.
So they're going to have to actually have more money to live on inside of that $150,000 of gross income. I mean, this is just good all around. All right, we want to remind you once again that this show is brought to you by CardinalGuide.com. If you go to CardinalGuide.com, you're going to see the Seven Worries tab, and this show is done under the IRA tab, because, you know, obviously it's a contribution out of your IRA. And there you're going to find show notes, all sorts of resources, as well as a video on the same subject. And again, the contact information there for Hans is right there on the contact page.
And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. Great show, Hans. Thanks. Yeah, this is wonderful. God bless you.
God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.
Any statements or opinions are subject to change without notice. Investments involve risk, and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.
Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a Registered Investment Advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.
