The Consolidated Appropriations Act of 2016 became public law on Dec 18th. Included therein is the establishment of Qualified Charitable Distributions (“QCDs”) from IRAs as permanent. Previously the QCD provision expired annually and required extension via temporary legislation.
What is a QCD?
QCDs are direct transfers from an IRA to a qualified charity totaling up to $100,000/yr.
What are the benefits?
- QCDs satisfy the Required Minimum Distribution (“RMD”) rules.
- QCDs are not included in Adjusted Gross Income (“AGI”).
Why does it matter?
Consider a typical IRA distribution to the IRA owner who then donates to charity. The IRA owner must include the distribution in AGI (unlike the IRA owner who uses a QCD). The increase to AGI may result in:
- increased income taxes on Social Security benefits
- Medicare premiums may be increased
- higher thresholds for itemized deductions, exemption phase outs, etc
- greater possible exposure to the 3.8% Net Investment Income Tax (one of the “Obamacare” taxes)
What’s required?
- The IRA owner must be at least 70 ½ years of age at the time of the QCD.
- The organization receiving the donation must be an organization that qualifies for a charitable income tax deduction of an individual (other than a private grant-making foundation), a donor-advised fund or a supporting organization under Internal Revenue Code §509(a)(3).
- The charity must provide the same contribution acknowledgment needed to claim a charitable income tax deduction.
Are indirect transfers permitted?
No. Funds must go directly from the IRA to the charity. Funds that have been distributed from the IRA to the IRA owner and are then contributed to charity don’t qualify.
Are all types of IRAs eligible for a QCD?
No. Most IRAs and retirement annuities are eligible. Not eligible are inherited IRAs, SEP-IRAs and SIMPLEs.
Does it have to be a cash donation?
No. Any deferred tax asset in an IRA is eligible. Common examples are financial assets such as stocks and tangible assets such as real estate.
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