Charitable Giving and Alphabet Soup – IRA, RMD, and QCD
by Laura Chiesman
As we move toward the end of the year, you may notice that your mailbox and inbox are filling up with requests from your favorite charities and likely also from many organizations that you don’t even know.
There’s a good reason for this upsurge in communication at year-end. Approximately one-third of all annual charitable giving occurs each December. The stakes are high for organizations who depend on our giving. In 2015 donations from America’s individuals, estates, foundations and corporations reached an estimated $373.25 billion in 2015. Twenty nine percent of these donations occurred in December, and a full 11% in the last three days of the year as reported by Network for Good’s Digital Giving Index.
In a blog posted earlier this year, A Picture of Generosity, we discussed ways to research organizations and make choices about where to donate. As the giving season heats up you may be hearing about Qualified Charitable Distributions (QCDs) and wonder if this an opportunity for you. A QCD is a donation made directly from your IRA to a qualified charity.
The Pension Protection Act of 2006 first allowed taxpayers age 70½ or older to make tax-free charitable donations from their IRAs. Technically, these taxpayers were allowed to exclude from gross income otherwise taxable distributions from their IRA, up to $100,000, as long as the payments were paid directly to a qualified charity. This law was originally set to expire in 2007, but between 2008 and 2014 was extended in several, however, not all years. The annual question of whether or not the QCD legislation would be approved, was often not answered until sometime in December and this uncertainty made planning very difficult, causing many to wait until the last minute to make charitable contribution decisions. Finally the Protect Americans from Tax Hikes (PATH) Act of 2015 made this law permanent.
As always, decisions around tax-related issues must be considered individually; there are many factors involved and you should work with your financial and tax advisers to determine if a QCD is right for you. Here are some basics to get you started:
- You must be 70½ or older to make QCDs and these distributions count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to receive from your IRA.
- QCDs are of particular interest to those who are charitably inclined, don’t depend on their IRA distributions to provide for cash flow needs and who will benefit by limiting adjusted gross income resulting from RMDs.
- You can exclude up to $100,000 of QCDs from your gross income in 2016. If you file a joint return, your spouse can exclude an additional $100,000 of QCDs in 2016.
- You won’t get a deduction for QCDs as charitable contributions on your federal income tax return–that would be “double-dipping”.
- It is required that the QCD go directly from your IRA to the charity. Distributions that you receive from your IRA (including RMDs) and later transfer to a charity will not qualify as QCDs.
- Confirm whether charitable organizations are eligible for QCDs – private foundations, donor-advised funds and split-interest charitable trusts are not eligible.
- Be sure to obtain a letter of acknowledgment from the charity and save all documentation related to your Qualified Charitable Distributions.
If you have questions about QCDs or other topics and would like to schedule a complimentary consultation, please call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 or visit us at www.firstwavefinancial.com to schedule an appointment!