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Help clients save on taxes through their RMDs

Changes to the tax code last year nearly doubled the standard deduction, meaning those who have itemized taxes in the past may no longer need to. Charitable donations have always been “below-the-line” deductions, so if your clients no longer itemize they won’t receive a tax benefit from those donations.

The Tax Policy Center has estimated that the number of households claiming an itemized deduction for their charitable contributions will drop by more than half, and the marginal tax benefit from charitable contributions for middle-income taxpayers will fall from 8.1 percent to 3.3 percent.1 So it’s likely this change will affect many of your clients.

But there’s a way you can still help clients who are 70½ or older and who take RMDs -- suggest a qualified chartable distribution (QCD) directly from their IRA.

What’s a QCD and how can it help?
QCDs are distributions paid directly to a charitable organization by IRA owners who are over 70½.  (More information on QCDs can be found here). These payments count toward the client’s IRA minimum distribution requirement for the year but aren’t treated as taxable income. They reduce a client’s adjusted gross income, which can help reduce their tax obligations even if they don’t itemize their deductions.

What should I do?
If you have clients over age 70½ who make charitable contributions, talk to them now about this tax change and how it might affect their financial plans. If they expect to benefit from the increased standard deduction they might want to consider using an IRA with QCDs to maximize their tax benefit.

Call your wholesaling team with questions. Or contact Scott Van Wyngarden in annuity advanced markets at 515.247.6785, or VanWyngarden.Scott@principal.com.


1 Gleckman, Howard, www.taxpolicycenter.org/taxvox, January 2018


The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. Clients should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
For financial professional use only. Not for distribution to the public.


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