Does it Make Sense to Make a Charitable Contribution from my IRA?

If you are 70 ½ or older, you are eligible to make a Qualified Charitable Distribution (QCD) from your IRA directly to a qualified charity.  By electing to make a QCD, the distribution of these funds will be reported as a distribution and will count toward the required minimum distribution from the IRA, but will not be included in taxable income.  This is an advantage for taxpayers who do not need the required minimum distribution to live on and are charitable givers.

The advantage in making a QCD is that by having the distribution excluded from taxable income, it may

  • Make less Social Security benefits taxable

  • Allow for a “deemed” deduction even if you take the standard deduction,  or if your itemized deductions are limited (the QCD will neither be included in income nor allowed as a deduction).

  • Lower AGI as it relates phase-outs of deductions, exclusions, or tax credits that are limited or lost at certain AGI levels.

To make a QCD you must have the distribution sent directly from the IRA (by the trustee) to a qualified charity as defined in IRC Sec. 408(d)(8).  Many trustees and custodians have forms in place to handle this distribution. The distribution cannot first be paid out to the beneficiary and then paid to the charity.  This action would include the distribution in taxable income and would qualify the amount as a charitable contribution as an itemized deduction.

QCDs are limited to taxpayers who are 70 ½ or older at the time of the QCD and are limited to $100,000 per individual per year.  They must be made directly from an IRA to the charity and the charity must still provide documentation that would be necessary to make an itemized charitable deduction.  Also, the amount of QCD is limited to the amount of the distribution that would otherwise be included in taxable income.

Contact your tax advisor to learn more.