What is a qualified charitable distribution (QCD)? A QCD is a distribution from an IRA that goes directly to a qualifying charity and is not included in the taxable income of the IRA owner. A QCD cannot be made from an employer plan. A QCD can be up to $100,000 a year, per individual.
1) Either an IRA owner or a beneficiary can do a QCD. The individual must be at least age 70½ at the time of the transaction. Reaching age 70½ later in the year is not enough. Both spouses can do a QCD when each spouse does the QCD from their own IRA.
2) A QCD can be made from an IRA, an inactive SEP or SIMPLE IRA, or a Roth IRA. Only pre- tax amounts can be used for a QCD, which makes the use of Roth funds very unlikely. The QCD must be a direct transfer to a qualifying charity. A check payable to the charity but sent to the IRA owner will qualify as a QCD, as will a check written from a “checkbook IRA” to a qualifying charity. If an IRA owner receives a check payable to him from his IRA and then later gives those funds to charity, that is not considered a QCD.
3) A charity must be a qualifying charity. It cannot be a donor-advised fund or a private foundation. A one-time only, $50,000 QCD to a charitable gift annuity, charitable remainder unitrust, or a charitable remainder annuity trust is allowed. A QCD to a charity where the IRA owner has an outstanding pledge will qualify and will not create a prohibited transaction. The QCD must satisfy all charitable deduction rules. If a distribution to a charity is more than $100,000, the amount over $100,000 is taxable to the IRA owner and is deductible on the owner’s income tax return. The excess amount cannot be carried over to a future tax year.
4) A QCD can satisfy a required minimum distribution (RMD) but can be made before age 73. It is not limited to the amount of the RMD, but is capped at $100,000 a year. If an RMD is more than $100,000, any amounts in excess of the QCD are taxable to the IRA owner. QCDs can now be made before the first RMD year (age 73).
5)
The IRA custodian has no special tax reporting for a QCD.
The QCD will be reported on Form 1099-R as a regular distribution. The IRA owner will need to report the QCD on his tax return. The amount of the QCD is excluded from the owner’s taxable income. The IRA owner also cannot take a charitable deduction for the QCD amount.
Advisory services offered through CreativeOne Wealth, LLC a Registered Investment Adviser. CreativeOne Wealth, LLC and Oliver Asset Management are unaffiliated entities.
Licensed Insurance Professional. Respond and learn how financial products, including life insurance and annuities can be used in various planning strategies for retirement. The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional tax advice for applicability to your personal situation.
*Testimonials are based on unique experiences from current clients and are not representative of all client experiences. Testimonials are unsolicited and clients received no compensation (cash or non-cash). Past performance is no guarantee of future results. Testimonials are encouraged and welcomed from all prospects and clients. Investment advisory services offered through CreativeOne Wealth, LLC, a registered investment advisor. CreativeOne Wealth is not affiliated with Oliver Asset Management. Additional information about CreativeOne Wealth, LLC is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary report which are accessible online via the SEC’s Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD #281213.
Oliver Asset Management © 2023