Did you know you can protect local lands and waters that matter most with a gift through your IRA?
There are benefits for anyone 70 ½ years or older making Qualified Charitable Distributions (QCD’s). As you plan your year-end giving, please consider a donation to Saratoga PLAN via qualified charitable distributions from your IRA.
“I want to thank my colleague, Samantha Masey, CFP® for her insightful article on Qualified Charitable Donations (QCD) and how they can be used to facilitate tax efficient charitable donations. My family and I are passionate about supporting Saratoga PLAN and we fully appreciate how important they are to building a community where experiencing the wonders of nature is part of our daily living.”
Martin Shields, Chief Wealth Advisor
Bouchey Financial Group
What Is a Qualified Charitable Distribution?
Written by: Samantha Masey, CFP®
A qualified charitable distribution (QCD) is a distribution of funds from an IRA paid directly to a qualified charity.
This article explores who is eligible to make qualified charitable distributions, the benefits of QCDs, and some commonly asked questions.
Who is eligible to make a qualified charitable distribution?
An individual is eligible if they are 70 ½ years or older. It’s important to note that the Secure Act changed the Required Minimum Distribution (RMD) age to 73. Each individual can contribute a maximum of $100,000 annually and is not limited to the amount of their RMD. If married, each spouse can contribute up to $100,000 individually.
A QCD must come from the following eligible account types:
- Traditional IRAs
- Inherited IRAs
- SEP IRA (inactive plans only*)
- SIMPLE IRA (inactive plans only*)
*401(k) and 403(b) accounts are not eligible for QCDs.
What type of charity can receive a QCD?
Qualified charitable distributions must be made to qualified charities as determined by the IRS. These charities fall under the 501(c)(3) portion of the US Internal Revenue Code that allows for federal tax exemption of charitable organizations.
Saratoga PLAN is a US 501(c)(3) tax-exempt organization. EIN # 14-1706013
QCDs cannot be made to donor-advised funds (DAF).
To make a QCD, simply request that your IRA custodian issue a check from your IRA payable to the charity. You can request that the check be mailed to the charity or forwarded to you for you to personally deliver. Many financial custodians are able to provide a specific checkbook where you can write a check yourself directly to the charity. If the check is made payable to you then the distribution will not qualify as a QCD or receive the favorable tax treatment.
What are the benefits of making qualified charitable distributions?
There are three main benefits of making qualified charitable distributions. In conjunction, they provide a powerful tax benefit.
- Reduce your income taxes
A normal IRA distribution is taxed at ordinary income levels. When using a QCD strategy, the distribution is paid directly from an IRA account to the qualified charity and excludes the donation amount from federal taxable income.
Keep in mind that the entire IRA distribution amount will still be listed on your 1099-R tax form. It is important for you to communicate the donation to your tax professional as an adjustment is required on your tax return with the full amount in box 4a of your Federal 1040 and the reduced amount in box 4b for the taxable portion with a “QCD” label. Your custodian will be able to provide a record of the checks sent to any charitable organization.
This represents an opportunity for eligible individuals who are charitably inclined and/or already make charitable donations to take advantage of drawing from their IRA account to eliminate taxes associated with those specific distributions.
- IRA owners can deduct QCDs from their Required Minimum Distribution (RMD)
Qualified charitable contributions are one of the only ways to reduce your required minimum distribution. There is no limit on the number of QCDs you can make in a year, as long as the sum of the dollar amounts does not exceed the $100,000 maximum. However, for the QCD to count toward the year’s RMD the funds must come out of your IRA by your RMD deadline which is generally December 31st.
- QCDs are more advantageous than cash charitable contributions
There are two reasons QCDs can provide a larger tax impact than making cash charitable contributions. Many taxpayers are no longer itemizing deductions due to the $10,000 limit on state and local income tax deductions. Utilizing QCDs allows you to receive a direct write off for the entire amount of your donation.
In addition, because QCDs reduce taxable IRA distributions the deduction is taken before “Adjusted Gross Income” is calculated. AGI is an important figure as this amount is used when determining Medicare Part B and D premiums and whether an individual has to pay a higher rate than the base amount.
Bouchey Financial Group has local offices in Saratoga Springs and Troy, NY.