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Retire Wise | November 2022

Retire Wise | November 2022

November 15, 2022

Considering a QCD in 2022? Act Now!

As the winter holidays approach, many people are thinking about ways to satisfy their annual charitable giving goals. For those who meet certain requirements, a Qualified Charitable Distribution (QCD) is one of the most tax-efficient methods for accomplishing these goals. QCDs may be even more attractive this year since two charitable tax breaks for making cash donations under the SECURE Act are no longer available. That includes the elimination of the $300 charitable deduction for individuals who do not itemize and the change in the limit for deductions for charitable contributions which reverted back to 60% of adjusted gross income (AGI) in 2022, from 100% for tax years 2020 and 2021.

What is a QCD and how does it work?

Often referred to as an “IRA to charity,” a QCD allows anyone aged 70 ½ or older (on the date of transfer) to donate up to $100,000 as a tax-free gift to a qualified charitable organization. However, to qualify for the tax deduction, the funds must be directly transferred by the custodian of your traditional IRA to the qualified charitable organization on your behalf. For those subject to required minimum distributions (RMDs), distributions paid directly from an IRA to a charity are not taxable and will count toward satisfying your RMD. All or a part of the RMD (up to $100,000 per tax year) can be directed to one or more qualified charitable organizations and you will only be taxed on any remaining portion of the distribution that you receive. For example, if your RMD for the year is $10,000 and you direct $6,000 to your favorite charity, that $6,000 will count toward satisfying your RMD, and you will only be taxed on the remaining $4,000.1

It’s important to note that while the SECURE Act raised the age for RMDs to 72, the minimum age for a QCD remains at 70 ½. That means QCDs can be used for charitable giving even before RMDs begin. However, if you’re still contributing to an IRA, that may result in a reduction in the amount you can deduct for your QCD.

In addition to meeting the age requirement, your QCD must be completed by December 31st for it to count for the current tax year. Distributions can only come from your IRA, not an employer plan, and distributions must go directly to the qualified charity, not a donor advised fund, private foundation or to you. So, if you take a plan distribution and later decide to gift all or a portion of it to charity, it won’t count as a QCD, and you won’t receive the tax deduction. If you don’t have an IRA already, you’ll need to set one up so the amount earmarked for the charitable gift can be rolled over and the QCD can be completed before year end. That means you need to start now.

A QCD can be an attractive strategy for anyone subject to RMDs who does not need the income for current living expenses and is seeking to lower their AGI while satisfying important charitable giving goals. To get started or to discuss whether a QCD is right for you, call the office to schedule time to talk.

1 “IRA FAQs - Distributions (Withdrawals).”, Accessed 28 Oct. 2022.

Will Inflation Deflate Your 2023 Social Security Increase?

There’s good news for retirees facing the challenges posed by today’s high inflation and rising interest rates: Social Security benefits are going up and Medicare premiums are going down.

In October, the Social Security Administration announced an 8.7% cost-of-living adjustment (COLA), the highest increase in 40 years, which is scheduled to take effect on January 1, 2023. That means the average Social Security retirement benefit amount will increase $146 per month, to $1,827 in 2023, from $1,681 in 2022.1  At the same time, the standard monthly premium for Medicare Part B enrollees will decrease by $5.20 a month to $164.90 from $170.10 in 2022.2

Social Security COLA increases are tied to the Consumer Price Index (CPI) and calculated annually using the average rate of inflation in the third quarter of the year. They are meant to provide inflation protection so people can maintain their standard of living in retirement. However, even next year’s healthy increase could lead to benefits falling short for many retirees. That’s because retirees’ buying power can be disproportionately impacted when price increases in areas including healthcare, food, housing, utilities, and transportation exceed the average rate of inflation.

For example, while the CPI all items index increased 8.2% percent for the 12 months ending September 2022, the energy index increased 19.8% and the food index increased 11.2%. Even small increases in healthcare, which remains one of the largest expenses people face in retirement, can take a toll, since increases tend to have a compounding effect over time. For instance, when Medicare Part B premiums rose to $170.10 per month in 2022, from $148.50 in 2021, that increased the cost basis for future adjustments. Even though Part B premiums will decrease by $5.20 per month next year, beneficiaries will still pay $16.40 more per month than they did in 2021.

How can you protect your income from the ravages of inflation?

A comprehensive financial strategy aligned with your goals and risk tolerance can provide a framework to help manage the challenges posed by inflation and other risk factors in retirement. Meet with your financial professional at least annually to review your strategy to determine if any adjustments are needed to help you remain on track. That may include evaluating trade-offs or reprioritizing goals as market and economic conditions, or your personal circumstance change.

If you have questions about managing income in retirement, call the office today to schedule time to talk about your concerns.

1 “Cost-of-Living Adjustment (COLA) Information for 2023.” Accessed 31 Oct. 2022.
2 “Costs.” Accessed 31 Oct 2022.
3 “Consumer Price Index – September 2022.” 13 Oct. 2022

This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.