New Tax Law Offers Added Incentive to Make Tax-Free Transfer of RMDs From Your IRA to Charity

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Question: I heard that the new tax law changed some of the rules pertaining to charitable giving. Can I still make a tax-free transfer from my IRA to charity and have it count as my required minimum distribution? I'm 75 and I've been doing that for the past few years.

Answer: Yes. The new tax law doesn't change the rules for qualified charitable distributions, or QCDs, which let people older than 70½ transfer up to $100,000 from their IRAs to charity each year and have it count as their RMD without being added to their adjusted gross income. In fact, the new law is likely to make QCDs attractive to more retirees.

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The new law also doesn't change the basic rules for charitable deductions (other than increasing the deduction limit for cash contributions from 50% to 60% of your adjusted gross income). But because the law nearly doubled the standard deduction, fewer people will itemize deductions -- and you can only deduct charitable contributions if you itemize. Until Congress changed the rules, the 2018 standard deduction was scheduled to be $13,000 for joint filers, $6,500 for single filers and $9,550 for those filing as head of household. But now, the 2018 basic standard deduction will be $24,000 for joint filers, $12,000 for single filers and $18,000 for heads of household. Taxpayers older than 65 get an even better deal. Each spouse age 65 or older gets an extra $1,300, so if both husband and wife are 65 or older, the standard deduction is $26,600; single taxpayers and heads of household age 65 and older get an extra $1,600, bringing their standard deduction to $13,600 and $19,600, respectively. It makes sense to itemize only if your itemized deductions are larger than that threshold.

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Meanwhile, the new law also limits some other itemized deductions that make it even more difficult to cross that threshold. For example, the law caps the itemized deduction for state and local taxes (including property, sales and income taxes) at $10,000. The deduction for interest paid on home-equity loans is eliminated for both new and existing loans. And the mortgage-interest deduction will be limited to interest on the first $750,000 of debt for home loans taken out after December 14, 2017 (interest on up to $1 million in mortgage debt is deductible for loans taken out on or before December 14).

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.