Written By: Curt Anderson
As someone who makes contributions to a qualified charitable organization (A Breath of Hope Lung Foundation) I can assure you that Qualified Charitable Distributions (QCDs) may turn out to be one of your BFFs (Best Financial Friends).
Under this method, persons who are at least 70 ½ years old may have funds transferred directly from their IRA to an eligible 501(c)(3) charitable organization. The advantage is that the funds do not add to your taxable income for the year.
QCDs have become more valuable and more popular. The recently extended 2017 tax law raised the standard deduction, so fewer people itemize deductions and many no longer get a tax break for charitable donations. A solution, if you are 70 ½ or older, is to take a non-taxable QCD from your IRA in effect converting otherwise taxable income to a tax-free contribution.
Because taking QCDs instead of distributions from your IRA reduces taxable income, there are other potential advantages. Reducing taxable income may prevent additional charges (IRMAAs) for Medicare premiums, may prevent the phase-out of certain deductions and may prevent you from moving to a higher tax bracket.
There are certain regulations governing QCDs.
- Donors must be 70½ or older. The required minimum distribution age has been updated to 73, but qualified charitable distributions (QCDs) can still be made starting at age 70 ½.
- The funds must be disbursed directly from the IRA custodian or trustee to the designated charitable organization. The check can be sent to the IRA owner, but must be made out to the charity.
- Annual QCD transfers are capped at $108,000 per person or $216,000 per married couple, indexed for inflation.
- The QCD cannot come from a 401(k) plan, but it can come from an inherited IRA provided the beneficiary is at least 70 ½ years old.
- The IRS does not allow QCD contributions to donor-advised funds or private foundations because they are not 501(c)3 organizations.
Tax filing is easy. Report the full amount of the IRA distributions, including the amount of the QCDs, on the line for IRA distributions. Then exclude the amount of the QCD distributions on the line for the taxable amount and enter “QCD” next to the taxable line.
Note: I prefer to have the checks payable to the charitable organization but mailed to me to forward on. This allows me to make and retain copies for my records. Please consult with your own tax professional regarding your own concerns or obligations.
