10 Things to Know About Qualified Charitable Distributions (QCDs)
For anyone wanting to make qualified charitable distributions (QCD) and save on taxes for 2019, this is the time to start planning. If you are already taking required minimum distributions (RMDs) from your IRA account(s) and/or are making charitable donations, QCD is something you should strongly consider. With the new tax law changes that went into effect in January of 2018, QCDs are a powerful tool that should be discussed with your advisor.
Here are 10 things you should know about QCDs:
- Under the new tax reform, you have more opportunities to maximize your deductions. Most taxpayers take a standard deduction on their tax forms. If you take a standard deduction, the option for charitable giving is eliminated. Ask your fiduciary advisor how best to make charitable distributions from your IRA(s).
- A QCD might add to your standard deduction. Donations made directly from your IRA can help lower your adjusted gross income (AGI) by excluding all donations made from your IRA from your income. It just takes a bit of planning.
- If you own an IRA or are a beneficiary and have reached age 70½ years old, you can make qualified charitable distributions. Check with your fiduciary financial advisor(s) before jumping into a decision.
- Should you choose to make a QCD, it must be a direct transfer from your IRA account to your selected organization. Any distributions you take cannot be given to the charity for a deduction. That said, you can request a check, payable to the organization, mailed to you and then you can deliver it in person. It’s usually easier for our clients to just set up a direct transfer.
- To qualify for a QCD, you cannot receive anything in return for your donation. That means no free tickets, mugs, or services in exchange for your contribution. Make sure your gift is actually a gift, not a trade. It’s also important to note that gifts to donor advised funds or private foundations do not meet the requirements for a qualified charitable distribution.
- QCDs are limited to $100,000 per year, per individual. If you are married and your spouse also qualifies, you can each give the full $100,000 annually. Talk with your tax advisor to review your best options.
- Any amount transferred from your IRA to a charity as a qualified charitable contribution can count towards your 2018 RMD. If you don’t need additional taxable income, this is a great way to keep your tax bracket lower.
- Qualified charitable distributions can only be made from an IRA, Roth IRA or inactive SEP or SIMPLE IRA. Other employer plans, such as a 401(k) or 403(b), do not qualify for QCDs. Your financial advisor can help you choose the best account to make donations from. If you still have a corporate plan and want to make a QCD, talk to your fiduciary advisor to potentially transfer funds from your plan to an IRA.
- With regards to #8, QCDs only apply to the taxable amounts in your IRA. Only the taxable amounts in a Roth IRA will qualify. This can get very complicated. Please seek out your fiduciary advisor’s recommendations.
- Make sure you keep the communication with your accountant open and consistent during this process. Your accountant should know about any QCDs you make or plan to make for that calendar year. Otherwise, when your custodian submits your 1099-R form, there will no be information about your qualifying charitable distributions. Don’t make this mistake by making sure your accountant is aware of any IRA transactions you make, especially QCD’s.
Planning out your finances can be tricky and complicated. If you need help with tax-planning or charitable donations, consider working with a fiduciary financial advisor to guide you. Ambassador Wealth specialized in tax-planning services. We would love the opportunity to meet you.