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 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
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