Qualified Charitable Distributions

Once you reach age 70 ½ you need to start taking required minimum distributions (RMDs) from your IRA each year.  There’s a simple formula to determine how much you need to take.  Then you just withdraw the money and—here’s the important part—pay the taxes.  Until recently, there was no way around those taxes.  Then Congress changed the rules to allow people to make tax free charitable donations directly from their IRAs and count those donations toward their RMDs. These are called Qualified Charitable Distributions (QCDs).  Here’s how they work.

If you have an RMD due, rather than having the money distributed to you, instruct the IRA trustee to send the money directly to a qualified charity.  The distribution will count toward your RMD and the IRS will exclude it from your taxable income.  You can exclude up to $100,000 per year.  If married and you file a joint return, your spouse can exclude an additional $100,000.

These distributions are particularly appealing after the recent tax law changes.  The standard deduction was raised considerably, which means many people will no longer itemize and deduct their giving.  The QCD allows you to still get a tax benefit for your charitable giving even if you don’t itemize. 

A few things to keep in mind:

• You must be at least 70 ½ to make a QCD.
• The QCD must be a distribution that would have otherwise been taxable.
• The distribution must go directly to the charity.  If you distribute it to yourself and then give it to the charity, it counts toward your RMD, but it does not count as a QCD.
• QCDs are excluded from your taxable income, so you can’t double dip and also claim them as a charitable contribution on your tax return. 
• You can make a QCD for up to $100,000 even if your RMD is less than that.
• A QCD cannot go to a private foundation or donor-advised fund.