IRA Tips For End of Year Tax Planning: The Qualified Charitable Distribution

If one of your resolutions or tax planning strategies is to give more to charity, you may want to consider a Qualified Charitable Distribution (QCD). The QCD IRA charitable rollover is now permanently written into our tax code and may be made from either a Roth or a traditional IRA account.

The Main Benefits Of A Qualified Charitable Distribution

  • A qualified charitable distribution does not increase your adjusted gross income (AGI), whereas taking an IRA distribution will increase your AGI. This can be advantageous for those who are required to take RMDs (Required Minimum Distributions) each year.
  • Depending on your tax situation, it may be more tax-advantageous to directly give from an IRA than to take the distribution yourself and then donate and take a charitable deduction as an itemized deduction.
  • If you currently do not itemize deductions but give to charity, then a QCD may benefit you by not increasing your AGI. And since you do not itemize, you would not lose the benefit of a charitable deduction.
  • If your state taxes IRA distributions as income but does not allow itemizations for charitable donations, then a QCD would avoid the increase in income, and would not reduce your state itemizations.
  • You can only claim a tax deduction on a donation up to 60% of your AGI. If you would like to donate more than 60%, a QCD, while you cannot take an itemization on it, would still allow you donate and receive tax benefits, namely not increasing your AGI.

What Are the Requirements & Restrictions?

  • The taxpayer must be 70 ½ years old or older.
  • The funds must be directly distributed from the IRA to the eligible charitable organization.
  • Contributions can only be made from IRA accounts. 401(k), 403(b) and 457 plans are not eligible.
  • The annual donation cannot be greater than $100,000. If you file a joint return, your spouse can also donate up to $100,000.
  • The gift cannot be made for a material gain, such as a contribution for a gift annuity, pooled income fund, or a charitable remainder trust.
  • Donations cannot be made to private foundations, donor-advised funds, or supporting organizations.

How To Make A Contribution

Remember to always talk to a tax professional about your specific situation; we are not tax professionals and this information should not be construed as tax advice. Read more about the Qualified Charitable Distribution on the IRS website or read Pub. 590-B, “Distributions from Individual Retirement Arrangements (IRAs)”. It is also critical for you to speak to your tax professional about rules under the tax reform (the Tax Cuts and Jobs Act).

Once you and your tax professional have decided to make a contribution through your IRA, contact our office, and we can guide you through the donation process.