By Laura Rowley

Individuals who have attained age 70 ½ can make contributions to a charity directly from an IRA after Congress approved the 2016 Appropriations Act on December 2015. The ability to make such contributions was potentially available each year but was subject to annual review and approval. With the passage of the 2016 Appropriations Act, it is now “permanently” in place.

Now You See It, Now You Don’t, Now You Do
QCD’s have been available one year and gone the next for many years.  Several years,  it was even reinstated retroactively. Twice it was approved with only two weeks left in the year – after most had already received their taxable IRA distributions!  Fortunately it has been made permanent, for now, and we don’t have to wait until the end of each year wondering what might be the best course of action.

What is the Benefit?
The required minimum distribution, which generally begins at age 70 ½, is included in adjustable gross income (AGI).  A distribution from a retirement account can increase one’s tax liability in several ways.  For example, it can limit a taxpayers use of  itemized tax deductions and tax credits which are phased out as AGI increases.  The income is also included in calculating the tax on Social Security benefits and can increase the cost of Medicare premiums.

Is QCD the Best Option for Gifts to Charity?
That depends, a careful analysis is a good idea. Gifting appreciated stock may still be a superior strategy over a QCD.  It will depend on the amount of the capital gain and the whether the taxpayer can use the entire charitable deduction within five years.  Each individual situation will dictate which option will provide the biggest benefit to the charity and the least tax to the donor.

The Rules:

  • The IRA owner must be 70 ½ or older
  • The funds must go directly to the charity or it will be considered a taxable distribution
  • Any amount up to $100,000 per individual may be donated
  • The charity cannot be a private foundation, donor advised fund, or other indirect vehicle such as a charitable trust
  • Obtain documentation to substantiate the donation.  Ideally you will want a letter from the charity showing both the date and the amount of your contribution.
  • The donor must not receive anything from the charity in return for the donation

Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.