Have you considered a Qualified Charitable Distribution from your IRA?
At the end of 2015, lawmakers approved a permanent measure allowing individuals to make qualified charitable distributions (QCDs) from their individual retirement accounts (IRA). IRA owners who are over 70 ½ and are charitably inclined may want to consider a QCD. This strategy can have tax advantages and will satisfy all or part of the account’s required minimum distribution (RMD).
Qualified Charitable Distribution Details
- QCDs can be made from IRAs or SEP/SIMPLE IRAs that are not actively receiving contributions.
- QCDs cannot come from employer retirement plans.
- The QCD must be made on or after the date the IRA owner is 70 ½ years old.
- The annual limit is $105,000 per person.
- A married couple can each complete QCDs of $105,000 from their separate IRAs.
- Any excess amount withdrawn over $105,000 will count as taxable income.
- The QCD must be sent directly from the IRA to the charity.
- The charity must be eligible to receive tax deductible contributions under IRS guidelines.
- QCDs count towards satisfying annual RMDs from IRA accounts.
Benefits:
QCD amounts are excluded from the IRA owners adjusted gross income (AGI). Lowering AGI is beneficial in that taxpayers may:
- Avoid the loss of exemptions, phaseouts, credits, and deductions due to AGI limits;
- Avoid the alternative minimum tax (AMT);
- Avoid increases in premiums for Medicare Parts B and D; and
- Still receive a tax benefit even if they take a standard deduction (for non itemizers only).
A QCD is a more tax efficient way to make a charitable contribution of cash compared to taking an IRA distribution, adding that income to AGI, and then taking a charitable deduction, since the income and the deduction often don’t offset completely.
Considerations:
- QCDs cannot be made to donor advised funds, private foundations, or charitable gift annuities.
- Charitable gifts of appreciated securities from a taxable account may be more tax efficient than making a QCD.
