You may have read about Qualified Charitable Distributions (QCDs) that can be made directly from your IRA. QCDs have gotten a lot of press this year as a tax-savvy strategy to support your favorite charity -- an opportunity that will expire at the end of this year unless Congress acts (and we’ve all seen how swiftly they act) to lock in the benefit.
If you have reached age 70-½ you have to begin taking required minimum distributions from your qualified retirement accounts. Some people don’t really want – or need – these taxable distributions. Well, you can’t get around taking them (thus the name “required minimum distributions”), but if you are charitably-inclined, you can get around paying the tax. Your QCD can satisfy your distribution requirement, but there is no tax if the distribution is made directly to an IRS-approved charity. The gift also works to help reduce the size of your taxable estate.
There are a few important caveats. As outlined in a recent Smart Money article, your QCD must meet all of the following tax-law requirements:
- It must be distributed from your retirement account, and you must be at least age 70-1/2 to use this strategy.
- The distribution must be made directly by the IRA trustee to the IRS-approved charity. If the distribution check is made out to you personally, it will not qualify.
- You cannot receive any benefits that would be subtracted from the donation – it must meet the normal tax-law requirements for a 100 percent deductible donation. This means you can’t receive anything in return for your donation, such as tickets to events, etc.
- Your distribution must be otherwise taxable.
- There is a $100,000 limit on total QCDs for any individual. If you are married and both you and your spouse have IRAs, then each of you is entitled to a separate $100,000 limit, for a combined total of $200,000.
Once again, the current tax laws that allow for QCD’s are only guaranteed until the end of this year. If this is a strategy that appeals to you, be sure to get qualified professional advice before making any gift of retirement assets.
Reference: SmartMoney (July 20, 2011) “Making Charitable Donations from Your IRA”