By: Kathleen Bowlby
Qualified Charitable Distributions (QCDs) are distributions made directly to a charity from your IRA account. The primary tax benefit is that the distribution will not be taxable to you if given directly to the charity and counts toward your Required Minimum Distribution (RMD). Many rules need to be followed when contemplating this tax-saving strategy. Here are some fun facts about QCDs:
- You must be over 70 ½ years old to make a QCD.
- The maximum QCD per person per year is $100,000. If you individually give more than $100,000, the excess will be taxable. The excess distribution will also be deductible as an itemized deduction.
- QCDs cannot be done from a 401K or other employer plans.
- QCDs can be done from IRA accounts, inactive SEP, and SIMPLE plans.
- The QCD MUST BE DONE BY DIRECT TRANSFER TO CHARITY. Donor-advised funds, private grant-making foundations, and charitable gift annuities will not work.
- NO part of the QCD can benefit the IRA owner personally. It cannot be a split-interest gift.
- The QCD counts as part of the taxpayer’s RMD. The portion of the RMD associated with the QCD will not be taxable. For example, if your RMD is $12,000 and you make a QCD of $5,000, the taxable portion of your RMD is $7,000. The same set of circumstances, but if you give $12,000 to charities through a QCD, the taxable amount of your RMD is zero.
- NO DOUBLE DIPPING ALLOWED! If you do a QCD, there is no additional itemized deduction for that charitable contribution.
- QCDs only apply to taxable amounts, so don’t do it from a ROTH IRA. Since the distributions from Roth accounts are not taxable, it makes no sense.
- Don’t Take that free tote bag! Any donation made where the taxpayer gets something in return (free tickets, tote bags, coffee mugs, etc.) will not qualify. There can be no benefit to the taxpayer. For example, don’t give money to a private school scholarship from which your grandchildren benefit.
- The charity must be a qualified 501(c)(3).
- There is nothing on the 1099-R tax document you received that indicates that you made a QCD. Make sure to give your tax preparer your documentation letters from the charities.
To learn more, contact a Reynolds + Rowella tax advisor.
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