Blog Article

Merriman INSIGHT – Using Qualified Charitable Distributions to Maximize Charitable Gifts

By Merriman Wealth Management, Wealth Advisor
Published On 06/01/2016

On December 18, 2015, the president signed into law the Protecting Americans from Tax Hikes (PATH) Act of 2015. One of the popular tax provisions in this bill was to permanently extend the ability for IRA owners to make qualified charitable distributions (QCD) from their IRA to a qualified charity of their choice. Prior to the PATH Act, this provision expired multiple times since its debut in 2006, only to be temporarily extended by Congress each time, often at the last minute or retroactively. This uncertainty made charitable planning more difficult, but now we finally have clarity!

For those who are charitably inclined, a QCD can really maximize the effectiveness of charitable gifts.

Here’s how it works

IRA owners who are 70½ or older and would otherwise have to satisfy a required minimum distribution from an IRA may donate any portion up to $100,000 of the required distribution directly to qualified charity. The IRA owner can exclude the amount of the QCD from his or her gross income (thereby reducing their adjusted gross income), but any donation made via a QCD is not eligible for a charitable deduction. From a tax perspective, an exclusion from income is preferable over a deduction from income — particularly for those who don’t meet the itemized deductions threshold in the first place.

As with many IRS provisions there are a number of fine print items to keep in mind.

  • You’re only eligible to make a QCD if you are 70½ or older.
  • Contributions can only be made to 501(c)(3) charities and 170(b)(1)(A) organizations.
  • Donor advised funds and private non-operating foundations are not eligible to receive QCDs.
  • The QCD must be made directly from your IRA to the desired charity, meaning the check issued from your IRA must be payable to the organization. If the check is made payable to you, then it counts as taxable income and will be considered a normal IRA distribution.
  • The QCD can be made from any IRA. SEP and SIMPLE IRAs are only eligible if they are not receiving employer contributions in the same year as the QCD is made. You cannot make the QCD from any employer retirement plans, such as a 401(k), 457 or 403(b), etc.
  • The QCD cannot be a split-interest gift, meaning 100% of the gift must go to a single charity and the gift cannot be shared with the donor or any other designee of the donor (for example, Charitable Remainder Trusts or Charitable Lead Trusts would not qualify). The donor cannot receive any economic benefit as part of the gift.

If you are interested in making a donation directly from your IRA to a charity, please reach out to your advisor to get started and make 2016 a year of giving!

 

Written by retired Merriman Wealth Advisor Phuc Dang

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By Merriman Wealth Management, Wealth Advisor

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