Qualified Charitable Distribution

Qualified Charitable Distribution

Are you 70 1/2 or older

Have an IRA

Would like to gift to a qualified charity, tax-free

If you make donations, and are subject to required minimum distributions (RMD) rules for your IRA, gifting some of your RMD income using the qualified charitable distribution strategy may be a great way to both benefit the charity and reduce taxes you pay. A qualified charitable distribution will count toward satisfying your RMD, and neither you or the charity will have to pay income taxes.

Key Benefit of QCD

The key benefit of a qualified charitable distribution (QCD) is that the distribution amount is not included on your Form 1040 as income. That’s a good thing, but there’s a bit of a downside, too. The QCD cannot be used as a deductible charitable contribution if you itemize your deductions. That would be something of a double tax break for the same transaction. Given the changes in the tax code for 2018-2025, resulting from the Tax Jobs and Cuts Act of 2017, more people will be using the standard deduction so using QCD will make good financial sense.

Can I make a qualified charitable distribution every year?

Yes. In December 2015, former President Obama signed the PATH Act, which made qualified charitable distributions permanenet. Prior to this, the provision had to be extended each year by an act of Congress.

Use this checklist to learn more about the tax rules around qualified charitable distributions.

Is the distribution from an IRA?

Only IRAs are eligible for qualified charitable distributions. If you have money in a 401(k) or other non-IRA plans, the assets must first be rolled to an IRA to be eligible for a qualified charitable distribution. Ongoing SEP or SIMPLE IRAs are not eligible for qualified charitable distributions. A plan is ongoing if a contribution is made to it for the taxable year of the qualified charitable distribution.

Are you over 70 1/2?

You cannot take a qualified charitable distribution until you turn 70 1/2.

Is the check payable directly to the charity?

You cannot take active receipt of the money. If you want to personally mail the check to the charity, request the payee of the check to be the charity, but have the check mailed to your home or office so you can present it to the charity personally.

Is the distribution to a public charity?

Only distributions made to a qualified 501 (c)(3) organization, like Haven Community Church, can qualify as a qualified charitable distribution. Distributions to a donor-advised fund, supporting organization, private foundation, charitable remainder trust, charitable gift annuity, and pooled income funds do not qualify.

Does your tax advisor know you are taking a qualified charitable distribution?

Because there is no special process or reporting of a qualified charitable distribution on IRS Form 1099R, it is important that your tax advisor is made aware that the distribution is a qualified charitable distribution so it is properlyreported on your tax return. The instructions for IRS Form 1040 include information on reporting qualified charitable distributions.

Meet with your advisors.

We recommend you meet with you tax advisor as well as you financial advisor to learn more about qualified charitable distributions.