This charitable giving strategy typically offers the largest tax advantage, according to an advisor.

• To optimize your tax benefits during retirement, consider making a qualified charitable distribution (QCD) for your year-end charitable gift.
• The strategy involves transferring funds from an individual retirement account to a non-profit organization.
• Experts suggest using QCDs to decrease adjusted gross income and meet required minimum distributions.

To maximize your tax break when making a year-end donation to charity, financial experts recommend a crucial step.

Non-profit organizations can receive direct transfers from individual retirement accounts through qualified charitable distributions (QCDs). Furthermore, retirees have the opportunity to give more in 2024, as per the IRS.

According to Sandi Weaver, a certified financial planner and owner of Weaver Financial in Mission, Kansas, the strategy of "almost always has the highest tax advantage" when it comes to giving options.

Qualifying individuals can transfer up to $105,000 tax-free from a pre-tax IRA in 2024, an increase from $100,000 in previous years, due to Secure 2.0 legislation.

According to the IRS, the limit will increase to $108,000 in 2025.

QCD tax break is 'better than a deduction'

You must choose between claiming the standard deduction or your total itemized deductions, including charitable gifts, when filing taxes.

Most filers do not claim the charitable deduction due to the higher standard deduction since 2018, as only about 10% of filers itemized in 2021, according to the latest IRS data.

CFP Juan Ros, a partner at Forum Financial Management in Thousand Oaks, California, stated that although there is no tax deduction for a QCD, the amount distributed is excluded from income, which is advantageous compared to a deduction.

He advised that charitable giving should be done through QCD first if possible.

Experts assert that one of the significant advantages of QCDs is that they won't increase your adjusted gross income.

Medicare Part B and Part D premiums can be adjusted monthly based on higher AGI, as explained by Weaver.

In 2024, single filers with a modified adjusted gross income (MAGI) above $103,000 and married couples filing together with a MAGI above $206,000 can expect higher premiums.

Your 2022 tax return will determine the premiums you pay in 2024, which have a two-year lookback period.

Satisfy your required minimum distribution

According to Ros, another advantage of QCDs is that they can help reduce your AGI by offsetting your annual required minimum distribution, or RMD.

In 2024, the stock market's highs led to an increase in pre-tax IRA balances, which may result in higher RMDs for some retirees. According to a Fidelity report based on 5.8 million IRA accounts, the average IRA balance was $129,200 as of June 30, representing a 14% increase from the previous year.

Starting at age 73, most retirees are required to withdraw funds from their pre-tax retirement accounts in the form of RMDs.