It Pays to Be Charitable

Qualified Charitable Distributions (QCDs),
and what they mean for your philanthropic efforts

As the landscape of regulations surrounding retirement accounts continues to evolve, it’s important to keep informed of your options – especially when rules and requirements affecting your individual retirement accounts have implications for the timing and nature of distributions.

Effective in – and permanent as of – 2016, the IRA Qualified Charitable Distribution (QCD) provision allows individuals of qualifying age 70 ½ to gift Required Minimum Distributions (RMDs) tax-free to eligible charities.

Previously, most IRA withdrawals were considered taxable events; withdrawals also added to individuals’ Adjusted Gross Income (AGI) and therefore increased the taxable sum. As a result of the new law Congress passed in December 2015, QCDs enable individuals to bypass the taxation of charitable gifts and negates the impact of these distributions on your AGI.

Emphasizing the advantages this development offers philanthropically-minded retirees, Director of Insurance & Retirement Plan Services John Bebee believes “dually beneficial in satisfying all or some of an individual’s RMD and facilitating tax-free charitable gifting, the new QCD provision is an attractive option for investors”.

Eligible charities must meet Exempt Public Charity stipulations [Sec. 509(a)(1) and Sec. 170(b)(1)(A)]. Private foundations, supporting organizations, and donor advised funds do not qualify as QCD recipients, so be mindful that many university and medical center foundations are not eligible for this provision.

To avoid taxes on your RMD, the gift must be made directly from an IRA to your charity of choice. Additional limitations to note include the ineligibility of SEP or SIMPLE IRAs if they are still receiving employer contributions and the guaranteed taxation of funds if placed in another account prior to gifting.

More important details to consider: as the IRA owner, you will report your IRA distribution as a nontaxable income on your federal tax return (the limit is $100,000 per individual each year). Procedures for you as the IRA owner to obtain the charitable transfer benefit will be part of the Tax Form 1040 instructions.

Are you 70 ½ years or older? Do you have charitable gifting aspirations? Have you met your Required Minimum Distribution this year?

Consider the Qualified Charitable Distribution provision as an effective means of avoiding taxation of philanthropic gifting.

As always, be sure to consult with a tax advisor.