New Tax Benefits for Retirees Under Secure Act of 2022

The Secure Act of 2022 makes several significant changes that benefit retirees. Specifically, it applies to Qualified Charitable Distributions (QCDs) and Required Minimum Distributions (RMDs). These important reforms give greater financial security to retirees. They allow retirees to meet their tax liabilities without paying taxes on the money by giving it to a charitable organization.

>Under the new legislation, QCDs will start indexing to inflation beginning in year 2024. This change raises the maximum amount retirees can contribute directly from their pretax retirement accounts. Today, they are able to promote qualifying charitable organizations without incurring tax liability for doing so. Eligible retirees are required to start taking Required Minimum Distributions (RMDs) from their tax-advantaged accounts when they turn 73. If they don’t, they may incur fines by the Internal Revenue Service (IRS).

QCDs have a two-fold benefit. Besides saving you on taxes due to your annual RMDs being lower, they serve to lower your AGI. Reducing AGI prevents other tax breaks from being gradually reduced or phased out as AGI rises. The challenge here is the fact that more than nine out of ten filers do not itemize and thus cannot benefit from charitable deductions. Because the distribution made through QCDs isn’t included in taxable income, this option is especially beneficial.

RMDs are calculated using the balance from the previous year-end and an IRS-provided “life expectancy factor.” Currently, retirees must begin taking their first Required Minimum Distribution (RMD) by April 1, immediately following their 73rd birthday. From there, they have to ensure that they take each following distribution no later than December 31 each year. With indexing, the standard deduction in 2025 would be $15,750 for single filers and $31,500 for married couples filing jointly. Therefore, millions of retirees can greatly improve their financial well-being by using Qualified Charitable Distributions (QCDs).

“The amount distributed is excluded from income, which is better than a deduction.” – Juan Ros

Elder care lawyers counsel their clients on the value of QCDs. They pointed out that these transfers can be especially useful for people with established philanthropic interests.

“For my philanthropic clients, it’s almost a no-brainer,” – Jim Guarino

Combined, the provisions found in the Secure Act of 2022 provide retirees with invaluable tools. These tweaks enable them to operate more profitably and stay in business while advancing charitable missions. QCDs provide retirees financially savvy options. Their inflation adjustment and RMD-reducing powers make them an effective tool in retirement planning.