As the end of the year quickly approaches, taxpayers may be thinking about their final charitable gifts as well as ensuring that they have taken their required minimum distributions from their IRAs. Utilizing a Qualified Charitable Distribution (a QCD) may help some taxpayers satisfy both of these goals. Additionally, with the tax reforms adopted for 2018, fewer taxpayers are able to utilize itemized deductions. For these taxpayers, utilizing a QCD also may provide a tax deduction.
When utilizing a QCD, qualifying donors may transfer up to $100,000.00 to qualified charitable organizations each year using funds from their IRA without it being treated as a taxable distribution. However, donors need to be aware of the very specific rules associated with making a QCD. Donors who adhere to these rules may make a gift directly from their IRA to a qualifying charitable organizations while counting it towards their required minimum distribution. The most critical rule is that the IRA administrator must transfer the funds directly from the IRA to the qualifying charitable organization. Additional rules to which a donor must adhere are:
o The donor must be 70 ½ or older.
o The gift must be made directly from a traditional IRA to a qualifying charitable organization.
o Gifts to all charitable organizations combined cannot exceed $100,000.00 per donor per year.
o The gift is not included in a donor’s taxable income.
o No charitable deduction is permitted for the gift.
o The gifts must be outright and no material benefits can be received in return for the gifts.
o The gift may only be made from a donor’s IRA. Gifts from 401(k) plans, 403(b) plans, or other plans do not qualify.
If a taxpayer desires to make a Qualified Charitable Distribution from his or her IRA to charitable organization, the taxpayer should first determine that their charitable organization of choice is a qualifying charitable organization. In order to qualify, a charitable organization must qualify as a Section 501(c) (3) organization. Private foundations, supporting organizations, and donor advised funds to not qualify for the receipt of a QCD. Establishing that the charitable organization is a qualifying organization can be done by contacting the organization directly, often through its development office. The taxpayer also should obtain the current address of the qualifying charitable organization and its Tax Identification Number as this information may be required by the IRA administrator in order to complete the QCD. Advising the qualifying charitable organization that the taxpayer intents to initiate a QCD for the benefit of the qualifying charitable organization is helpful as the charitable organization can provide assistance in ensuring that the QCD is designate properly to reflect the taxpayer’s intent for the use of the funds provided by the QCD. The taxpayer should then contact the administrator of his or her retirement account and instruct that funds be transferred directly to the qualifying charitable organization. Taxpayers may be required to utilize specific forms provided by the IRA administrator.
Qualified Charitable Distributions are a valuable tool that may assist taxpayers in achieving multiple goals. For more information on charitable planning, please contact Colleen Stumpf or another member of the Quinn Law Firm‘s Estate Planning Practice Group by calling 814-833-2222.