Qualifying Charitable Distributions (QCDs)
by David J. Stenhaug, CFA (ABC Volunteer)
Many retirees that have an Individual Retirement Account (IRA) and age 70 ½ or older are not aware that in lieu of taking their Required Minimum Distribution, they may direct their IRA provider to send some or all of their distribution to their favorite charity or charities. These “qualifying charitable distributions,” (QCDs) are becoming more popular than ever since the law was changed to allow this back in 2006 as a temporary measure. In the intervening years it lapsed and was revived several times. Thankfully in 2015 it was made permanent. It is a powerful incentive to charitable giving.
The requirements for making a qualified charitable distribution are relatively simple. The charitable distribution must be:
- From a traditional IRA or a Roth IRA;
- Direct from the IRA trustee to the charitable organization;
- On or after the IRA owner has reached age 70½; and
- A contribution to an organization that qualifies as a charitable organization, other than a private foundation or donor advised fund.
There are many potential benefits for making charitable contributions from your IRA. Probably the most important is that, under the new Federal tax law that takes effect in 2018, the “standard deduction” has increased dramatically, and as a result more individuals than ever will not need to itemize via Schedule “A” on their tax return. Thus the amount of donation made, via a qualifying charitable distribution from your IRA, avoids the donor’s tax return, and the donor can effectively get both the standard deduction and the charitable contribution deduction. Secondly, it is less likely that some taxpayers will see their Social Security taxed due to the reduction in their taxable income.
Consider making a donation to ABC via your IRA. Consult with your tax preparer or the investment company that holds your IRA with more questions.