Financial Updates With Erin Kennedy & Peter Richon | Help Your Favorite Charity And Reduce On Taxes

We want you to plan for success. Welcome to Planning Matters Radio. Hi, Peter, it's good to see you as you know, the end of the year is creeping up and you have a great topic today.

I love it. How to help your favorite charity while reducing your taxes. I know that you're always thinking of ways to help your clients lessen their tax burden. And you mentioned a really good option for people who have large retirement accounts and want to make large gifts to charity.

What is that? Yeah, and it's really a win win with no downside. It is the QCD or qualified charitable distribution. And most people don't itemize deductions anymore because the standard deduction is significantly higher than a lot of people have deductions. So most people are just taking that standard deduction. But through a QCD, qualified charitable distribution, if you do have an IRA, you can move money from your IRA directly to your charity. And it is a dollar per dollar deduction.

There, in fact, is an absolute wash. It comes right off of your income. It's as though that income never existed.

And if you are of RMD age, the government loves these acronyms, required minimum distribution at age 72, when the government mandates that you start paying your tax bill and forces distributions from your IRAs, you can satisfy that RMD with a QCD and, in fact, have one of the very few opportunities for truly tax free money over the course of our lifetime. So we earned the money. We put it into the IRA. We didn't pay tax at that time. We got a deduction.

It grew tax deferred. And then we get to gift it to our favorite charity tax free. So it really is a win win win. And it does satisfy the RMD requirements as well.

So I guess a third win there. By the way, Aaron, the SECURE Act in 2020, it actually was passed in 2019. It went into effect in 2020, pushed RMD age out to 72. But the QCD age of 70 and a half remained.

So basically, if you turn 70 and a half within the calendar year, even if you're not yet required to take an RMD, you can still take advantage of the QCD. It's hard to keep all those letters straight. It is.

I feel like Dr. Seuss. Yes, exactly. IRA funds are generally the best assets for QCD since they're loaded with taxes, which is also relevant when we're considering which assets to leave our beneficiaries. Yeah, there are some assets that are better to be left behind as a legacy than others. And the IRA is not one of them. The IRS and legislation has pretty much reinforced that your IRA is a retirement planning vehicle, not a great legacy planning vehicle. Meaning which, you know, a lot of people are always worried about, well, what about the death tax, the state tax?

Most people aren't ever going to have to worry about that. But what they are going to have to worry about is that there's a layer of taxation before you even get there. And that is income tax. If you leave an IRA to your next generation, they have to pay 100 percent of the income tax on that account before we ever even worry about death or estate tax.

And a lot of people don't realize that. So let's say you have two or three children and you leave an IRA behind. It's potentially likely, in fact, that the IRS is your largest beneficiary when you break things down. And that account no longer can be stretched out over the course of their lifetime and grandchildren's lifetimes. It has to be liquidated within 10 years, often pushing those beneficiaries into even higher tax rates and brackets.

So really, the IRA is one of the least favorable vehicles to be left behind. So on the balance of of where to give to your favorite charity or church or nonprofit organization, the IRA is one of the best assets to liquidate or utilize for that purpose. But even better, if you can do it directly to the charity from your IRA in the form of that QCD, because again, you satisfy the RMDs and it's a dollar per dollar wash. So it's not like that income ever even hits your tax brackets or rates. It's essentially truly tax free money for you and for your charity over your lifetime. Right.

Now, I just want to return again to the RMD portion of this, because I think this is significant because there are so many people. I know your clients, Peter, who are charitably minded. And so maybe they're tithing, maybe they're donating at church.

The way I like to look at this visual is that guy in the middle is you with the collection plate. Right. So this is a lot of us tithing and giving our money or to a charity, but we're paying tax on it when there are there's a better option.

Yeah. Now, I have a lot of clients who are tithers at church. And just a side note, I find the tithers end up a lot of times being more successful with their money. I don't know what you want to credit that to, whether there's I think there is some some power behind that. And also, once you've given away the first 10 percent of your income, you're a little more careful and prudent with the rest of your income.

So tend to ultimately be more successful. But I do see a lot of them making the misstep, if you will, that they are taking an RMD from their IRA on one hand and then donating or tithing to their church or charity with cash on the other hand. Well, that has created taxable income. And then you are making that donation with after tax dollars that have been taxed. Why not keep and preserve your after tax dollars and gift directly to your church and make your tithes with those pretax dollars? The church gets the same dollar amount.

They they they love you just as much. You have have met the tithing that that you feel responsible for and you don't have to pay tax on those dollars. Again, really a win win scenario. One of our very few opportunities for truly tax free money.

And if you're not doing this, if you are tithing over seventy two or seventy a half or above, make sure you look into it. Yeah, absolutely. Again, this is it's such such a win win.

There's a kind of there's no other way to describe it. I really value this conversation. Peter, if somebody would like to talk to you about whether this is right for them, what's the best way to reach you? Yeah. Give us a call.

Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six. I would like to note, Aaron, that this again, RMDs, QCDs, Roth conversions. These are all things with year end deadlines.

You cannot do this after December 31st. Get a jump on it now. All right, Peter, thank you. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss principle. Advisory services offered through Brooke's own capital management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.