Charitably minded investors can satisfy RMDs with QCDs

Qualified charitable distributions allow your required IRA distributions to benefit a worthy cause – while you benefit from a reduced tax liability.

Helping others when you’re gone is a noble and rewarding aspiration. But think how much more rewarding it could be, both personally and charitably, to help others while you’re still here.

Giving during your lifetime can take many forms, one of which is using qualified charitable distributions (QCDs). It’s an option that can also reduce your tax liability, as it involves donating pre-tax dollars before they become taxable income as a required minimum distribution (RMD).

Here’s how it works.

Transform RMDs into QCDs
Philanthropy is often reward enough, but charity and tax deductions seemingly go hand in hand. As the standard deduction has risen to $13,850 for individuals in 2023 (double for married filing jointly), you may want to consider giving strategies that don’t require itemizing on your tax return. A QCD is a great way to carry out your charitable intent that doesn’t require itemizing and also reduces your taxable income.

The required start age to begin taking distributions from your IRA has increased over the past few years from 70 1/2 to 73. However, the age that you can begin QCDs is still 70 1/2. These RMDs are generally treated as taxable income. Thankfully, the Protecting American from Tax Hikes (PATH) Act of 2015 permanently allowed an IRA owner to make qualified charitable distributions of up to $100,000 directly from their IRA to a charity without getting taxed on the distribution. Basically, you can satisfy your RMD amount without reporting additional income.

There is, however, another important benefit. When a QCD is used to satisfy an RMD, that amount is also excluded from tax formulas that could impact multiple categories such as Social Security taxation, Medicare Part B and D premiums, and the Medicare tax on investment income.

Rules to follow
You must be eligible. You must be age 70 1/2 or older at the time of the QCD (but remember, RMDs now begin at age 73). QCDs from Ongoing SEPs and SIMPLE IRAs are not permitted.

There is an annual limit. Your QCD cannot exceed $100,000 per tax year, even if your RMD is greater than $100,000. New legislation, the SECURE Act 2.0, indexes this $100,000 limit for inflation now in 2024.

Only qualified organizations count. The IRA trustee or custodian must make the distribution directly to a qualifying charity (private foundations and donor advised funds are not eligible). For instance, you cannot take the distribution yourself then write a check to the charity.

RMDs: A real-time legacy
By donating the RMD to a qualified charity, you can enjoy the satisfaction of knowing you are helping a worthy cause while simultaneously reducing your taxable income. This strategy also helps you live out your values in real time, effectively living your legacy in the here and now.

To learn more, seek guidance from your financial and tax advisors. They’re a good source of information when it comes to living and giving generously.

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

From the Desk of Dale Crossley and Evan Shear

We hope that you and your loved ones are doing well. It doesn’t seem that long ago that we were discussing how the markets may possibly be impacted during a presidential election year. It was a concern among investors in 2020 and once again, we’re having conversations with our clients. So, we thought you might find some additional information helpful.

As you know, many things can affect the stock market and, as a result, your financial portfolio. With a long-term plan in place, you may assume that you are ideally positioned to weather any challenges that may come your way. However, in the midst of an election year, many people grow uncertain. They start reevaluating their portfolios and considering how they may perform in the coming year. Will the 2024 presidential election affect your portfolio?

"Presidential Election Cycle Theory"

Presidential election cycle theory notes trends in the stock market based on the presidential election cycle. The cycle lays out the strongest years in the stock market based on the presidential election cycle. Year three of the president's term is often the strongest year on the market. Then, year four is the second strongest.
On the other hand, the first year of a president's term is often the weakest year of his term regarding the stock market. This can have significant implications for investors. Utilizing the presidential election cycle theory, investors might change their entire strategy. They might choose to purchase investments late in the year of the second year of a presidential term and then sell them late in the fourth year.

What History Tells Us

Historically, many things have the potential to impact the stock market. These factors include the current president and his economic and financial policies. There are some historical trends in the stock market based on specific stages of the presidential term cycle. But that theory does not always hold up. Also, worries about the presidential election cycle and its impact on the stock market are often overblown.

Take, for example, the last two presidents and how the stock market has performed during their terms. During Obama's presidency, the first two terms were more profitable than the third year. Trump saw a significant increase in profitability during his third year. But the fourth year, and the pandemic and other serious concerns, caused a highly volatile market that saw a decrease in the value of many investments.

Following the presidential election cycle theory can provide potential insight into investments, including a possible investment strategy and plan. However, based on a historical view, it does not necessarily follow that the upcoming election will substantially impact the stock market—regardless of who might win that election. Historic insights also indicate that the market can change dramatically based on conditions completely unrelated to election cycles. A long-term financial plan is the best way to weather the inevitable ups and downs in the market.

Should You Stay the Course?

As you try to decide what to do about your investments, many investors are considering whether they should sell assets late in 2024, before the new president takes office. However, a long-term investment strategy—one that allows for short-term shifts in the market—can be more effective than selling off investments as a reaction to the changing economic conditions anticipated after a presidential election.

In order to create an effective investment strategy, our advisors at CrossleyShear Wealth Management focus on the long-term value of your investments. You may be planning for a child's college fund, a significant purchase, or your retirement years. You might even want a long-term plan to provide generational wealth.

In all of those cases, the value of your investments will likely withstand the changes in the market. A long-term investment strategy that seeks to maximize value and return over time can be much more effective than pulling out of those investments in anticipation of a potentially difficult year.

By judging the market over time rather than on the basis of short-term economic changes, investors can develop a deeper understanding of options. You can also learn how you can help protect your investments. If you want have questions about your financial plan, please don’t hesitate to reach out. That’s why we’re here.

Any opinions are those of CrossleyShear Wealth Management and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.

The record breaking rise of ChatGPT

The computer program that talks back is taking over.

Netflix built a subscriber base of 1 million users in a mere 3.5 years following its launch, says statistics portal Statista. Twitter scored its first million tweeters in a snappy two years, Facebook its first million friends in a faster 10 months.

ChatGPT, the chatbot program that debuted near the close of 2021, landed its first million users within five days after its launch. In the two months following its launch, its subscriber base ballooned to more than 100 million users.

The bot’s runaway success is earned, say tech industry watchers. “The hype is warranted,” says Kemal Kvakic, Raymond James IT head of innovation.

What’s a chatbot?

A traditional chatbot is a computer program you can have a conversation with, through text messages or voice interactions. And for more than a decade they’ve filled commercial roles in customer service, mimicking human conversation, most often to answer a question you’ve asked.

Traditional chatbots depend upon “intent recognition.” The bot’s developers try to predict what you’ll ask and then program the bot with appropriate responses. If the bot can’t answer your question from what it’s been taught, it issues the all-purpose reply, “I’m sorry, but I don’t understand.” Congratulations – you’ve been chatbotted.

So, how does ChatGPT differ?

ChatGPT ups the ante.

Unlike traditional chatbots, ChatGPT’s doesn’t make simple matches between questions and preprogrammed answers. It digests vast quantities of data from across the internet, summarizes it, organizes it and taps into it to provide tailored answers just as a person would. And unlike other technologies, you can tell ChatGPT, “I didn’t understand that. Can you explain it another way?” And it will generate an updated response – one reflecting the entirety of your interaction with it so far.

It can even assume different identities. You can ask ChatGPT to explain something to you as if you’re an architect, a teacher or an 8-year-old, and it’ll respond accordingly. It can write computer code, poetry, lyrics and plays. It can generate images, audio and video. It’s so powerful, “The engineers who built ChatGPT don’t always understand why it provides the answers it does,” Kvakic says. And businesses have taken note.

Microsoft’s Bing search portal has already begun using ChatGPT to help enrich its platform. Microsoft’s total investment in OpenAI, the company behind ChatGPT, has reportedly reached $13 billion, and the company is leveraging OpenAI technology in Copilot, an AI-based assistant feature for Microsoft 365 apps.

Competition will surely grow in this space, says Kvakic, with more products integrating personal assistant-like capabilities quickly. Not to be one-upped by the likes of Bing, Google already has released its own advanced-AI chatbot, dubbed Bard.

In countless professions, the variety of generative AI driving ChatGPT could massively streamline associate training, customer service, code debugging and more. Imagine how this technology could create efficiencies – from cancer researchers who need to synthesize mountains of scientific data to legal teams who need to rationalize decades of case history.

With great power comes worry

For all its potential, ChatGPT and its emerging competitors pose risks. Concerns about information reliability and bias rest at the forefront of watchdogs’ worries, along with questions about the potential for deceptive deepfakes, copyright implications, privacy breaches and other uses by bad actors.

Not surprisingly, policy guardrails are pending. Several countries have enacted outright bans on certain types of AI systems, while U.S. policymakers are seeking public comment toward establishing rules to govern advanced AI systems in the states.

“We know AI regulation is coming,” says Kvakic. “The question is, how much?”

Facts and stats

• AI and chatbot technology have been a work in progress for nearly 60 years.
• The “GPT” in ChatGPT stands for “generative pre-trained transformer,” an AI technology developed by OpenAI.
• Early leaders of OpenAI included Sam Altman, Elon Musk, Reid Hoffman and Jessica Livingston.
• Microsoft holds a reported 49% stake in OpenAI.

Limitations and Unknowns

• Cybersecurity. Fraudsters may be able to use the tool to write convincing phishing messages.
• Objectivity. OpenAI's CEO has admitted that ChatGPT has shortcomings around bias.
• Regulation. AI regulation has already started to take shape, particularly in Europe.
• Competition. It’s likely that competing tools will continue to emerge in the months ahead.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.