Did you know that a qualified charitable distribution (QCD) can not only limit your tax liability for a required minimum distribution, but it also can provide a life income plan?

QCDs, which came into existence as part of the Pension Protection Act of 2006, provide a way for IRA owners who are charitably inclined to use part or all of their required minimum distributions (RMDs) -- up to $100,000 per year -- to avoid being taxed on the RMD when donating to a qualified charity. You can see if a charity qualifies by using the IRS Tax Exempt Organization Search Tool (tinyurl.com/497um8xp).

Some guidelines: The QCD is considered a nontaxable IRA withdrawal. The IRA owner must be at least 70 1/2 years old, which is younger than RMD starting age (currently age 73). The QCD must be paid directly from an IRA to a qualified charity. For more details, see IRS Publication 590-B (tinyurl.com/yc6tx8dh).

Now, thanks to SECURE Act 2.0, which became law in December 2022 as part of the 2023 Consolidated Appropriations Act, the charity receiving the QCD donation can pay you lifelong income. See "One-time Election for Qualified Charitable Distribution to Split-interest Entity," Section 307 of SECURE Act 2.0 (tinyurl.com/ycyck5bs).

A "split-interest entity" is defined in SECURE Act 2.0 as one of three things: a charitable remainder annuity trust, a charitable remainder unitrust or a charitable gift annuity. All three have the same requirement: they must be "funded exclusively by qualified charitable contributions."

Let's do an example first, then we'll come back for details and restrictions.

Say you are a 74-year-old alum of Duke University. You make a $50,000 QCD to Duke's charitable gift annuity life income plan. Based on your age and the payout rate (6.4%), you will receive $3,200 a year (taxable) for as long as you live. The university keeps the remainder when you pass away.

Some details: $50,000 is the maximum you can transfer to a split-interest entity. You can only do one in a lifetime, and you cannot split it up over a number of years. That is, while you can transfer less than $50,000 to a split-interest entity, you can't decide to transfer $25,000 one year and $25,000 the next. Note that your spouse can also contribute up to $50,000 as a QCD from his or her IRA under the same rules.

The $50,000 (or whatever amount you choose) counts toward your annual QCD limit for a given year (currently $100,000). There is no charitable deduction for the QCD. However, the dollar amount is not subject to income taxation. As mentioned previously, per IRS rules, the donation must be paid directly from the IRA to the qualified charity.

The charity is required to start payments no later than one year after the date of funding. Those payments will be considered ordinary income for you and will be taxable at your tax rate. Only you or your spouse can receive payments from your plan -- your children cannot receive payments.

The American Council on Gift Annuities, a nonprofit organization, provides suggested maximum gift annuity rate tables for both single life and two lives at its website (tinyurl.com/23w49r4p). "Most charities offer rates established by the American Council on Gift Annuities," according to the organization, which adds that the rates "are designed to balance an attractive payment stream for the annuitant with a good gift for the charity" (tinyurl.com/4h9wncjj).

If you are thinking of doing this type of life income plan, you will want to consult your tax adviser to make sure you understand all the nuances of QCDs, as each individual's tax situation is unique. You also will want to discuss your wishes with the charity you are considering (note that some charities are not eligible to receive QCDs).

This is a way to save tax dollars that would be paid on an RMD, while benefiting a charity and receiving some income at the same time.

It is a good deal for individuals who don't need their RMD cash for living expenses who are charitably inclined. But I wonder about the limitations. If legislators are reading this column, why not raise the current QCD limit above $100,000 plus inflation? Then match split-interest requirements to QCD dollar limits and permit annual contributions.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

What happens if you filed your tax return on time (by April 18 this year) but did not include your tax payment?

If you realize the mistake, send in your payment to lessen penalties and interest. Otherwise, expect a letter from the IRS, and be sure to read it carefully and immediately -- and, of course, review it with your accountant right away, as each tax situation is unique to the individual. The letter will ask you to send in a check for the taxes owed plus penalties and interest for failure to pay taxes. (Because you filed your return, you won't be charged penalties for failure to file.)

Expect to receive the letter, called an initial tax assessment notice (CP14), in early-to-mid-June if you filed on time. "By law (Section 6303 of the Internal Revenue Code), [the IRS] must notify you of a tax assessment within 60 days," an IRS spokesperson told me. Read more about CP14 at tinyurl.com/3ezx6cj4.

The penalty for failure to pay is 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid. The penalty "won't exceed 25% of your unpaid taxes," quoting the IRS Failure to Pay Penalty webpage (tinyurl.com/mtbec4c2).

Interest will also be assessed. The current quarterly interest rate (April through June) for underpayment of taxes is 7% (tinyurl.com/mr49bmj4), and the rate is compounded daily. Importantly, if you receive a notice, "you will not be charged interest on the amount shown if you pay the amount owed in full on or before the 'pay by' date," according to the IRS Interest webpage (tinyurl.com/m58hbew4).

It is possible to have penalties waived in certain cases. "The IRS may abate your penalties for filing and paying late if you can show reasonable cause and that the failure wasn't due to willful neglect," quoting IRS Tax Topic 653 (tinyurl.com/mwzmpm3t). "If you're billed for penalty charges and you have reasonable cause for abatement of the penalty, send your explanation along with the bill ... or call [the IRS] at 800-829-1040 for assistance."

While the IRS webpage Penalty Relief (tinyurl.com/yuac7874) mentions using Form 843 (Claim for Refund and Request for Abatement) if your relief request is not approved over the phone, the IRS spokesperson explained that most often, Form 843 is not needed, adding, "This is especially true if you have a notice or bill in hand -- just respond to that notice in writing."

The Penalty Relief for Reasonable Cause page at tinyurl.com/2p9d2558 has what might (and might not) qualify as a valid reason for failing to file or pay a tax on time. It also details what supporting documentation should be included.

The IRS abated nearly $50.9 billion in civil penalties during fiscal year 2022, with $36.7 billion of the abatement related to individual and estate and trust income tax returns (tinyurl.com/mr3r5sby).

For more information about notices, read "Understanding Your IRS Notice or Letter" at tinyurl.com/2d99nm3y.

By the way, the IRS considers a mailed payment to be made on time if "the envelope is properly addressed, has enough postage, is postmarked, and is deposited in the mail by the due date" (tinyurl.com/29b44u2z). If you file late and pay late, "you don't get credit for any possible mailing delays. Your return is treated as filed and paid on the day we get it," according to the IRS spokesperson.

And, let me add two pieces of advice for the future. Consider creating an IRS online account at tinyurl.com/2pwrtepw to make and check on payments. And, it doesn't hurt to check your bank account two weeks after making a tax payment to confirm the payment cleared. You can also call the IRS at 800-829-1040 to see if "the payment has been credited to your tax account" (tinyurl.com/4v4tf5hj).

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

What do you think makes a "great investor"? Is it simply the person who achieves the best returns, or has the ability to "sniff out" an opportunity? What about intellect? Are great investors just smarter than everyone else? Or is there something else that separates the good from the not-so-good investors?

Think Warren Buffett. He believes that "Temperament is more important than IQ. You need reasonable intelligence, but you absolutely have to have the right temperament. Otherwise, something will snap you" (tinyurl.com/y2uadrvh).

It's hard to disagree. Being effective as an investor is more about sensibility and less about IQ or guts or the drive to win.

Investing is not a contest. It is not a sport.

Further, investing is not as easy as it might seem. There is a lot to learn, and the learning never stops. Markets change, goals change -- in fact, even the unanticipated (think COVID-19) can affect an investment program.

What else? Understanding that every decision will not be the right decision. Accepting that the goal is to put money to work, not to strive for home runs. Recognizing that investing is not a competition. Understanding what investors do and don't control. Plus, having the nerve to recognize and weather inevitable storms.

I also agree with Wall Street columnist Jason Zweig's seven "virtues": curiosity, skepticism, independence, humility, discipline, patience and courage. (tinyurl.com/3p2mmx8w). Let's focus on just four.

CURIOSITY: "Ordinary investors are afraid of what they don't know, as if they are navigating the world with those antique maps that labeled uncharted waters with the warning 'here be dragons.' Great investors are afraid of what they do know, because they realize it might be biased, incomplete or wrong. So they never deviate from their lifelong, relentless quest to learn more."

In my view, curiosity drives learning. Resources abound, including those provided by regulators. The Financial Industry Regulatory Authority, which oversees U.S. broker-dealers, provides important, understandable information on the topics of personal finance and investing in its For Investors section (tinyurl.com/yc7hhwy3).

SKEPTICISM: "Numbing investors with numbers is a standard marketing tactic in the financial industry. That's why skepticism is one of the seven virtues of great investors."

Agreed. As I noted in my latest book, "The Discerning Investor," "Had I not started my Wall Street career as a lawyer preparing proxy statements, working on prospectus disclosures, and participating in industry committees, I doubt I would have developed the lawyerly traits -- skepticism being most important -- needed to manage retirement portfolios within a framework packed with uncertainties, both in the client's life and in the markets."

DISCIPLINE: Discipline is described as "not making it up as you go along, never flying by the seat of your pants. It means using rules, checklists, procedures and policies to make decisions" (tinyurl.com/4yb9sf4h).

Zweig offers the following example: "The late global investor Sir John Templeton relocated from New York to the Bahamas where, he told me decades ago, The Wall Street Journal arrived days late. By reading the news a week later, Templeton told me, he could put it in perspective and prevent himself from over-reacting."

PATIENCE: Patience "is often measured not in months or years but in decades."

Again, I have to agree. If you are on a path to creating wealth, the most important tool is time. Patience is absolutely necessary to maximize compounding by earning interest on interest. Time is the key contributor, assuming the chosen investment has potential for appreciation.

If you think you know everything you need to know, remember Zweig's key point on curiosity: Great investors keep learning. That's why investors like Buffett and Charlie Munger are still very much involved, even though they are both in their 90s.

If you think you can avoid due diligence, you might wind up with investments that may not be in your best interest.

If you think you don't need rules, you'll be flying by the seat of your pants.

If you don't think you need to start investing early, you'll never take full advantage of the math of compounding.

How would you define your temperament when it comes to investing? It's a question worth exploring.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION