Misinformation About QCDs Significantly Impacted Tax Situation
Oftentimes, new clients come to us after realizing they or a previous financial advisor missed a crucial action step that would have significantly impacted their tax situation. One such example involved a client who was misinformed about how to use Qualified Charitable Distributions (QCDs).
What is the Qualified Charitable Distribution?
A QCD allows an IRA owner over age 70½ to make charitable gifts directly from his or her IRA, up to $105,000 per donor within a calendar year. Assuming the donor is age 70½ or older, the gift counts towards the IRA owner’s required minimum distribution (RMD) for the year and is excluded from gross income. (Click here to learn more about QCDs.)
Storen Financial Accountant Spotted Costly QCD Error
If a financial advisor is not knowledgeable of the rules and regulations that apply to Qualified Charitable Distributions, mistakes can be made that lead to costly tax situations. One such situation recently occurred in the thick of tax season while reviewing our tax client’s documents. We discovered that our client had been misinformed by his financial advisor, and an error had occurred related to the money he’d given to charity.
After further inspection, our Storen Financial Accountant noticed that the QCD was not made from an IRA. This was a big red flag because the rules of a QCD only apply to IRAs. After discussing the situation with the client’s financial advisory firm, it became clear that the firm had mistakenly pulled money from the client’s 403b account instead of the IRA. Due to this error, the client was no longer eligible for the QCD and could only take the standard deduction. This cost him almost $2,000 in potential tax savings after all was said and done. Had the 403b account been transferred to the IRA to begin with, the new IRA would allow the client to take the QCD from one place, saving him on his taxes.
Errors like this are just one of the many reasons why we recommend working with financial advisors who are also qualified tax accountants. At Storen Financial, we are able to identify details that are often missed by other advisory firms.
Our financial advisors regularly study complex tax laws and undergo rigorous training through Ed Slott’s Elite IRA Advisor Group. We want you to understand our tax-saving strategies for building and diversifying your portfolio. For that reason, we happily sit down with clients to answer your toughest questions and help you spot strategies you may have missed, instilling you with the confidence and knowledge you need to place your trust in our team and what we do.
Have questions? Or interested in meeting with our Storen Advisory team? Click here to contact us now. Or click here to learn more about our Financial Planning Investment Services.
Blog by Alex Kiritschenko, EA – Financial Advisor, Senior Tax Accountant
Learn more about Alex and the rest of the Storen Financial team here.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.