Qualified Charitable ContributionsSubmitted by Karstens Investments on October 30th, 2019
by Steve L. Olafson, CFP ®
Individuals 70 ½ and older can transfer up to $100,000 per year from his or her IRA to a charity or qualified institution. This is often referred to as a Qualified Charitable Distribution or QCD. With a QCD, you do not take a tax deduction. Instead the amount that is transferred from the IRA is not subject to income tax, and it can count toward your required minimum distribution. Excluding this amount directly from your income is better than receiving a tax deduction because it keeps your above-the-line income lower which can have a positive impact on certain Adjusted Gross Income/Modified Adjusted Gross Income (AGI/MAGI) based figures such as taxable Social Security and Medicare premiums.
There are some rules and limitations to be aware of with a QCD. As previously mentioned, you must be at least 70 ½ and the annual limit is $100,000 per person. A QCD cannot be made to a donor-advised fund or a private foundation, and the donor cannot receive anything in return for the donation. You also have to make the transfer directly from the IRA to the charitable organization. Taking a distribution from your IRA and then sending a check from your personal bank account to your church would not be a QCD.
Many of our local clients are familiar with the Omaha Community Foundation and use the Foundation as a means for charitable giving. While distributions made to donor-advised funds are not considered QCDs, according to The Omaha Community Foundation, “Treatment of IRA distributions to the donor charitable checkbook (which is maintained by The Omaha Community Foundation Donor Directed Depository) is a little more complicated. The Omaha Community Foundation formed and obtained an IRS ruling letter for The Omaha Community Foundation Donor Directed Depository in 1991. The Omaha Community Foundation Donor Directed Depository is one of only seven charitable organizations in the country which obtained a determination letter as to a “donor charitable checkbook” type structure, under which the donor has the right to direct distributions from his/her ‘checkbook’ to charities.”
Despite the uncertainly of using a Charitable Checkbook for QCDs from an IRA, this is the Omaha Community Foundation’s most popular option. As with any tax scenario we would encourage you to consult with your tax advisor on this.
Finally, when it comes time to file your taxes, the IRA custodian does not do any special tax reporting of your QCD. They simply report the total amount of your distributions for the year on the 1099. You will want to inform your tax preparer to ensure the QCD is properly noted.
If you have any questions or would like to discuss these ideas in greater detail, please give us a call.