Depressed asset values are often a source of frustration and worry for investors. However, with those concerns often come opportunities to achieve long-term planning objectives.
For philanthropic taxpayers, a unique tax planning opportunity exists when donations are sourced from IRA funds. Referred to as “qualified charitable distributions”, or “QCDs”, this strategy has gained even more importance in light of tax reform taking effect in 2018.
In order for an IRA distribution to qualify for QCD treatment under Section 408(d)(8), certain requirements must be met:
- Age – Taxpayer must be age 70 ½ or older at the time of the distribution.
- Dollar Limit – Up to $100,000 per taxpayer (or $200,000 for a married couple) can be given across any or all of the individual’s IRAs.
- Qualified Charitable Organization – The distribution must be made directly to a qualified public charitable organization from the IRA custodian or trustee. QCD donations to donor-advised funds, charitable supporting organizations, private foundations or split-interest charitable trusts are not allowed.
- Source of Funds – QCD donations can be made from pre-tax funds in traditional IRAs, inherited IRAs (if the beneficiary is age 70 ½), rollover IRAs, inactive SEP and SIMPLE IRAs, and Roth IRAs. Donations from active SEP IRAs, active SIMPLE IRAs, and employer retirement plans do not qualify for QCD treatment.
BENEFITS OF UTILIZING QCD TREATMENT
Utilizing the QCD treatment for a donation to charity results in several key benefits to IRA owners, as well as potential tax savings:
- Excluded from Income – Distributions taken from an IRA under the QCD rules are excluded completely from the taxpayer’s income and results in no additional tax liability. No corresponding charitable deduction is taken as an itemized deduction.
- Satisfies RMD Obligation – QCD donations can satisfy the taxpayer’s Required Minimum Distribution (RMD) obligation for the tax year without causing additional taxable income.
- Lowers AGI – By taking advantage of the income exclusion for QCDs, Adjusted Gross Income (AGI) on the taxpayer’s tax return is lowered, as compared to taking a normal IRA distribution. Lower AGI may help the taxpayer qualify for other tax breaks and avoid income phase-outs.
If you would like to learn more about making a qualified charitable distribution, please contact your Relationship Manager, Wealth Management Advisor or Tax Advisor.
*Central Trust Company does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provided, and should not be relied on for tax, legal or accounting advice. Please consult with your tax advisor before engaging in any transaction.