Finance - HL 359 (1)

If you have a big IRA and you are a CHARITABLE person, then consider setting up a QCD to possibly have a tax advantage.  Most brokerage houses make this very easy.

Qualified Charitable Distribution (QCD): How It Works

Support your favorite charitable organizations even in retirement.

What is a QCD?

A qualified charitable distribution (QCD) is an individual retirement account (IRA) withdrawal that goes directly to charity and is excluded from taxable income. People 70½ and over can make qualified charitable distributions. QCDs can help people 73 and over comply with required minimum distribution (RMD) rules.

·       QCDs happen directly between the IRA administrator and the charitable organization. You cannot make the withdrawal yourself and then donate the funds yourself if you want the transaction to be recorded as a QCD.

·       You can donate up to $100,000 per year via QCDs.

·       Because the amount you donate is excluded from your taxable income, qualified charitable distributions are a way to lower your tax bill (they may also help avoid Medicare premium surcharges).

·       Unlike the process for claiming other charitable donations, you do not have to itemize on your tax return to get the tax benefits of a QCD.

·       After age 73, the IRS typically requires people to take minimum distributions from certain retirement accounts. QCDs can be a way for people to give to charity while complying with the RMD rule and without raising their tax bill

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. What are the rules for qualified charitable distributions?

Qualified charitable distributions are direct transfers from an IRA to qualified charities. Instead of taking a regular IRA withdrawal, you tell your IRA custodian to send the money directly to the charity for you.

 

There are six key rules to remember:

1.    Meet the age requirement. You must be 70 ½ years of age or older to make a QCD. 

2.    Donate to a qualified charity. The IRS has a list of approved 501(c)3 organizations and charities. 

3.    Make a direct transfer. You cannot withdraw the money yourself and then donate that money yourself. The money has to go directly from your IRA administrator to the charity. Each financial institution has its own process for doing so. 

4.    Don’t exceed the annual limit. The maximum annual qualified charitable distribution limit is $100,000 per person. For married couples, that means the maximum is $200,000.

5.    Report correctly. You must report the QCD on your federal income tax return. You’ll receive a Form 1099-R from your IRA administrator

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6.    Keep your receipts. Like with any deductible charitable contribution, get a receipt from the charity for your donation so you can substantiate your tax benefit if the IRS comes calling. 

» MORE: Why your estate plan may need asset appraisals

On the flip side, here are the common mistakes to avoid:

1.    Donating to nonqualified charities. The IRS defines a qualified charity as a 501(c)3 organization working to accomplish religious, charitable, scientific, literary, or other public purposes

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2.    Making an indirect donation. Do not make a personal donation and try to pass it off as a QCD. A QCD must come directly from your IRA administrator. The money should not touch your hands or your personal accounts. 

3.    Missing deadlines. Make sure your QCD is processed before Dec. 31 to count toward your required minimum distribution and for proper reporting on your income taxes. 

4.    Exceeding the annual limit. The QCD limit is $100,000 per person per year, or up to $200,000 for married couples from their individual IRAs. 

Learn more: What is a donor-advised fund?

Is a QCD better than a charitable deduction?

QCDs and charitable deductions both encourage charitable giving, offer tax benefits and benefit qualified charities, but there are still a few key differences.

 

Details	Qualified Charitable Distribution	Charitable Deduction
Age requirement	70 ½ or older.	No age requirement.
Source	IRA account.	Personal income.
Tax benefit	Excluded from taxable income.	Reduces taxable income.
Itemization	Automatic; no itemization required on your tax return (you can still take the standard deduction).	Requires itemized deductions on your tax return (you cannot take the standard deduction).
Contribution limit	$100,000 per person, per year.	Up to 60% of your adjusted gross income.
Required Minimum Distribution	Can count toward RMD.	Does not affect RMD.

 

With anything in estate planning and charitable giving, the tools you use depend on your personal and financial goals. Consult with your IRA administrator or a qualified financial advisor to determine what is best for you.

 

 (As with any of these informative articles, anyone who needs someone to talk to about

this very subject contact me and I can direct you to a knowledgeable advisor).

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