As you look to year-end charitable giving, you might be wise to look at the many benefits available to you through making a qualified charitable distribution (QCD) from your Individual Retirement Account (IRA).
As a result of the passage in 2015 of the Protecting Americans from Tax Hikes Act (PATH), QCD’s, after years of debate and delays, have finally been made permanent, minimizing the tax bite of Required Minimum Distributions (RMD).
Let’s start by reviewing just what a QCD is.
A QCD is a distribution from an IRA directly to a recognized 501©3 charitable organization. To qualify, a person must be 70.5 years of age or older at the time of the distribution, and the funds must be transferred from the IRA custodian to a qualified charity. The maximum amount that can be donated through a QCD is $100,000 per year per IRA owner. For an IRA distribution to qualify, the check cannot be made to the IRA owner but must be paid directly to the qualified charity.
Making a QCD from a traditional IRA appears to be more tax-efficient as opposed to a Roth IRA which can already be tax-free. Important to consider is that the distribution amount is not included as income on Form 1040. Conversely, the QCD amount is not included as part of the donor’s itemized deduction for charity.
QCD’s can be particularly beneficial to seniors who are more likely to take the standard deduction as opposed to itemizing. Whenever someone takes the standard deduction, the opportunity to generate a tax benefit from donating to a qualified charity is eliminated. So, for those non-itemizers, the only avenue available to receive a tangible tax benefit from their gift is by donating via a direct transfer from one’s IRA.
Of further significance, QCD’s can be counted towards one’s RMD for the year in which the gift is made. So, if you have to take an RMD, but feel that you don’t really need those funds, a QCD from your IRA presents a terrific way to make that mandatory required amount and at the same time receive helpful tax benefits.
So if you have an IRA and are looking for a unique way in which to benefit your favorite charity, make your RMD and benefit from favorable tax advantages, the QCD may be just right for you. QCD’s are now a permanent element of our tax laws and are likely to remain in place for the foreseeable future. We encourage you to speak with your tax advisor so as to determine if a QCD is in your best taxable interests.