Qualified Charitable Distributions were originated to encourage people to make charitable contributions from their IRA accounts. The QCDs were first introduced in 2006 and had to be “renewed” annually until finally it was made “permanent” for 2016 and subsequent years.
The QCD can be beneficial as the amount of the distribution doesn’t have to first be treated as a taxable IRA distribution to be then offset by a corresponding charitable deduction. Not counting the QCD as income can help to reduce the Federal Adjusted Gross Income (AGI) and possibly prevent or reduce elimination of benefits tied to it.
The potential for federal tax savings under the new tax law (Tax Cuts and Jobs Act of 2017) may even be greater as more taxpayers may be taking the standard deduction and not itemizing their deductions. These “non-itemizers” do not get a tax benefit for charitable contributions.
- The taxpayer making the charitable distribution from an IRA needs to actually be at least 70 ½ at the time the distribution is made – not just turning 70 ½ during the year the distribution is made;
- The maximum amount that a taxpayer can distribute from his/her IRA accounts is $100,000 per year – not $100,000 per distribution – to avoid the distribution being added to income as a taxable IRA distribution;
- The charitable distribution may be used to partially or completely satisfy a minimum distribution requirement, but it does not have to be limited to the required minimum distribution amount;
- Mechanically, the funds must come directly from the IRA custodian – either sent directly by the custodian to the charity or delivered by a check made payable directly from the IRA custodian to the charity;
- Finally, in order to qualify for the QCD, the entire distribution must be a deductible charitable gift. There can be no value or benefit back to the taxpayer such as a thank you gift.
This brief discussion does not necessarily give you all the information you need to know to make a decision about whether a QCD may benefit you. Please do not hesitate to contact us to discuss whether a QCD might be right for you.
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CRN-2276169-101118
QCDs: Use This Tax Strategy to Get More from 2018 RMDs; Brian Vnak,CFP, CPA; , January 4, 2018
How to Give Charitable Gifts and Avoid Paying Tax in 2018; Barry Glassman, February 12, 2018
IRS Publication 590-B for 2017 returns - page 13