Qualified Charitable Distribution
  • Core Financial Resources

Scott Patterson, EA, CFP ® | February 21, 2016

IRA, Charity

The Case

Often times seniors find that they no longer need to itemize their deductions. Rising standard deductions for those 65 and over and paid off mortgages are just a couple of the culprits. When this happens, charitable donations no longer directly contribute to the bottom line of the tax return. This doesn’t mean that seniors philanthropic ways cease, just that their contributions are no longer providing direct offset of taxable income.

The Solution

In late December 2015 Congress made permanent the “qualified charitable distributions” (QCD) of yesteryear. You may hear this called the “charitable rollover.” nWhen done correctly these distributions facilitate a contribution to a charity that is NOT included in tax. This is true even without itemizing. What’s more these QCDs count toward your required minimum distribution (RMD) for the year! As always there are rules to consider:

  1. You must be 70 1/2 or older
  2. Distributions must be made from an IRA (not SEP or SIMPLE IRAs)
  3. Contributions must be made directly to a qualified organization from the IRA provider
  4. Contributions in excess of $100,000 are not permitted.
  5. Deductions are limited by taxable income

The Benefit

RMDs can cause increased Medicare premiums and increased taxable Social Security income. Utilizing the QCD strategy you can satisfy RMD requirements without including the distribution in your taxable income.

More Information

IRS Pub 590

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