Year-End Reminder: Avoid This Costly Mistake

Under the SECURE (Setting Every Community Up for Retirement Enhancement) Act, taxpayers with earned income can continue making deductible contributions to IRAs after age 70½. For 2022, the maximum amount is $6,000 plus a $1,000 catch-up amount for those age 50 or older. But a client planning to make a qualified charitable distribution (QCD) from an IRA may be in for a nasty surprise if a deduction is claimed for an IRA contribution in the same year.

Making a deductible IRA contribution reduces the amount of a QCD that passes to charity tax-free. In Notice 2020-68, the IRS provides an example in which the excludable amount of the QCD is reduced by the amount of IRA contributions after age 70½. The result: the QCD donor could end up paying tax at ordinary income rates on money given to charity from the IRA—a potentially costly gift if the donor does not itemize.


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