Permanent: “lasting or intended to last or remain unchanged indefinitely.” Since 2006, Qualified Charitable Distributions (QCDs) have been a part of the tax code. A QCD allows an IRA owner who is at least 70½ to make a distribution from his or her IRA, directly to a qualified charitable organization. As of December 15, 2015, Congress has voted to make QCDs a part of permanent tax law. This is welcomed news since Congress has allowed the QCD to temporarily lapse in 5 of the past 10 years of its existence. A few times, the QCD was not reinstated until mid or late December, and 2015 was no exception.
Below are some highlights and considerations for QCDs:
- A QCD is not included as income and is not taxed (IRA distributions are typically taxed as ordinary income). A QCD cannot be claimed as a tax deduction if you itemize your deductions.
- There is an annual maximum gift limit of $100,000 per IRA owner.
- The distribution is sent directly from the IRA to the charity (The IRA owner never touches the distributed funds).
- A QCD counts toward the IRA owner’s Required Minimum Distribution obligation that must be taken out of the account each year.
- A QCD could be an effective way to reduce taxable income for those who plan to do charitable giving and take the standard deduction when filing their taxes.
- An IRA distribution to a Donor Advised Fund (DAF) does not qualify as a QCD, so the distribution would be taxed, although the gift to the DAF would still be tax deductible. A DAF is “a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals.”
If you would like further clarification about QCDs, please contact us. Regardless of your age, we encourage each of you to make charitable giving a permanent habit despite changes that occur in the tax law.