Qualified Charitable Distribution (QCD) Best Practices

As we near the end of the calendar year, many people take this opportunity to make donations to nonprofit and charitable organizations. With the holiday’s right around the corner and with everything going on in the world right now, there are more causes than ever to consider supporting. The good news is that there is a way for individuals age 70 ½ or better to make charitable distributions with an additional tax benefit. Qualified Charitable Distributions (QCD) allow those age 70 ½ or better to distribute funds of up to $100,000 total, per year, from their IRA to one or more charities – tax free! Here are a few things to keep in mind if you are considering making some end of year QCDs.

Benefits of QCDs

For most people who make contributions to nonprofits, the simple act of generosity is their primary motivation. However, it’s good to know that there are other financial benefits to being charitable. Here are just a few.

• Distribution counts towards your Required Minimum Distribution (RMD) without having to pay the tax
• Lowers your adjusted gross income which, in return:
  • May lower your taxable Social Security benefits
  • May lower net investment income tax
  • Could increase your medical expense deductions
• Satisfy charitable goals
• Distribute all, part, or above your Required Minimum Distribution (RMD) amount up to $100,000

Requirements

There are a few requirements you must meet in order to receive the tax benefit of a QCD. If you are concerned about meeting any of the requirements below, we suggest contacting a Financial Advisor to ensure your contribution has all the benefits possible.

• Must be age 70 ½ or better at the time of the distribution.
• Limit of $100,000 per IRA account owner, meaning both spouses may make QCDs up to $100,000 from their respective IRAs each year.
• Must be made from a traditional IRA or an Inherited IRA.
• Distribution must be made directly to a qualifying charitable organization.

Restrictions

There are just a few restrictions on how you give in order to receive the tax benefit from your QCD, but they are important to keep in mind, especially if Donor Advised Funds are a normal part of your giving practice.

• Distributions to Donor Advised Funds are restricted
• No goods or service can be received from the organization in exchange for the gift

Important Best Practices

These suggestions are true for both QCDs as well as any other charitable donations you make throughout the year. However, in the case of QCDs, timing is everything and not using the money by the deadline could result in tax penalties. If you have any concerns about how long the process may take, reach out to your Financial Advisor immediately.

• Ensure the charity is a qualified charity
• Obtain copies of checks for your tax records
• Ensure the check is cashed and clears your IRA account prior to December 31st *
• Follow-up with the charity to request that a receipt be mailed to you for your tax records
• Provide your tax professional with a list of all QCDs made and amounts

*It is important that your QCD clears your IRA prior to December 31st – otherwise, you may be hit with a 50% penalty from the IRS for not meeting your RMD.

Being generous is its own reward. QCDs simply make it financially feasible to be as generous as possible. So, if you are looking for ways to give during this holiday season and you need to take a RMD from your IRA, consult with your tax professional or Financial Advisor to talk about how QCDs can benefit you as well as the organizations you care about.