If you own an IRA and are 70 1/2 or older, a Qualified Charitable Contribution (QCD) can provide you with substantial benefits. At 70 ½, IRA owners are required to make an annual minimum withdrawal (RMD). A qualified charitable distribution can satisfy all or part the amount of your required minimum distribution from your IRA and, at the same time, reduce your taxable income. Using this strategy can benefit both you and your designated charity.
Here’s how it works. A direct transfer is made from your IRA account by your plan to a qualifying charity. This helps the charity. Qualifying charities must be a 501(c)(3) organization that is eligible to receive tax-deductible contributions. Please note that fund distributions made directly to you do not qualify.
The contribution amount, while satisfying all or part of your annual RMD, can in most cases be deducted from your taxable income, potentially lowering your income tax liability.
- You must be 70½ or older to be eligible to make a QCD.
- QCDs are limited to only the amount that would otherwise be taxed as ordinary income. Non-deductible contributions are excluded.
- The QCD maximum annual amount is $100,000. It is the total sum QCD contributions made to any and all charities in a calendar year. Your spouse can also make a QCD from his or her own IRA within the same tax year for up to $100,000.
- For a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
- You are not permitted to count any amount donated above your RMD toward satisfying a future year’s RMD.
While a QCD is not subject to Federal withholding, State tax rules may vary.
A QCD contribution requires you to receive the same type of acknowledgement from the charity of the donation you would need to claim any other deduction for a charitable contribution.
Your Mitz & Rozansky tax adviser can help you determine if both your IRA and charity qualify for QCDs. Please contact us at (414)352-3200 to discuss how a QCD can work for you.