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What are Qualified Charitable Distributions?

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A Qualified Charitable Distribution (QCD) is a direct transfer from your IRA custodian, payable to a qualified charity. If you meet certain rules, a QCD can be counted toward satisfying your required minimum distribution (RMD).

Normally when you withdraw your RMD from an IRA, the total amount of the RMD is included in your taxable income. One key benefit of a QCD is that the total amount you donate is excluded from your taxable income. In addition to the immediate reduction in income taxes, lowering taxable income can provide indirect tax benefits. For example, a lower adjusted gross income (AGI) could keep a larger amount of a retiree’s Social Security benefits free from income taxation.

Certain requirements apply:

  • The taxpayer/donor must be 70½ years of age or over on the date of distribution. (Turning 70½ sometime during the year is not enough; you must make the charitable distribution after you turn 70½ years old.)
  • The QCD may be from IRAs (including rollover IRAs) or Roth IRAs. (Though Roth IRA distributions are usually already tax-free and therefore the QCD rules are irrelevant. QCDs are possible only on taxable distributions.)
  • The charity must be a 501(c)(3) organization, eligible to receive tax-deductible contributions.
  • The distribution must be made by the IRA trustee directly to the public charity (not to the taxpayer/donor).
  • The maximum dollar amount for any individual from his/her IRAs is limited to $100,000 per year.
  • The donor cannot receive any goods or services in return.

The key process requirement is that the distribution check must be made payable directly to the public charity. If the distribution is made directly to the IRA owner who then makes a contribution to the charity, it is still a taxable distribution to the IRA owner and not a qualified charitable distribution.

Your qualified charitable distribution can satisfy all or part of the amount of your RMD from your IRA. For example, if your 2017 RMD was $10,000 and you made a $10,000 QCD for 2017, you have satisfied your 2017 RMD. If you made a $5,000 QCD, you would have to withdraw another $5,000 from your IRA before December 31, 2017 to satisfy your 2017 required minimum distribution.

The qualified charitable distribution can be a winnings strategy for both the individual and the charity.


Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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