At the very moment IRAs joined the retirement savings universe in 1974, so did Required Minimum Distributions (RMD). The government was more than happy to provide a tax-deferred way to save for the future, but it came with a future reckoning—paying taxes on all the contributions and on all future growth whenever an IRA owner began to take distributions. And to make sure those taxes got paid, the age of 70 ½ was attached as the latest you could wait to begin settling accounts with the benevolent federal government.

 

In 2006, a new wrinkle was added to RMDs. The Pension Protection Act created the Qualified Charitable Distribution (QCD), sometimes referred to as an IRA Charitable Rollover. It allowed IRA owners aged 70 ½ and older to give up to $100,000 of their annual required distribution to qualified charities. You couldn’t deduct the contribution from your taxes as you could with other charitable donations, but you also didn’t have to claim the distribution as income.

 

In 2007, the IRS clarified several issues concerning QCDs. In particular, the agency said anyone who is age 70 ½ or older, who is the beneficiary of an INHERITED IRA, could make Qualified Charitable Donations from an inherited IRA using the same rules as QCDs from traditional IRAs.

 

But with the passage of the SECURE Act in 2019, the age to begin RMDs was raised to 72. Then, SECURE Act 2.0 raised the RMD age to 73 beginning January 1, 2023. So, did the minimum age to make Qualified Charitable Distributions go up as well? The answer is, NO. Because QCDs were created under a different piece of legislation, the minimum age remains at 70 ½ whether you’re making the donations from a traditional IRA or an Inherited IRA.

 

Qualified Charitable Distribution Rules

  • The IRA owner must be at least 70½ years old at the time a distribution is made to charity.
  • The distribution must be made from the IRA directly to a qualified charity.
  • The combined value of all distributions made (to one or more charities) cannot exceed $100,000 per taxpayer per taxable year.
  • Transfers are not included in adjusted gross income for federal income tax purposes.
  • Transfers to charity may count as some or all of your annual Required Minimum Distribution withdrawal amount.
  • IRA transfers to charity are not taken into account in determining the deduction eligibility of other charitable contributions.

 

Other Considerations

  • Distributions cannot be made to gift annuities, charitable trusts, or pooled life income funds
  • Distributions cannot be made to donor-advised funds, private foundations, or supporting organizations, defined as charities carrying out exempt purposes by supporting other exempt organizations, usually other public charities.
  • The donor is responsible for and must obtain documentation for the distribution as he/she would substantiate any gift to charity.
  • For a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
  • Any amount donated above your RMD does not count toward satisfying a future year’s RMD.
  • Funds distributed directly to you, the IRA owner, which you then give to charity do not qualify as a QCD.

 

Tax Reporting

  • A QCD is reported as a normal distribution on IRS Form 1099-R for any non-Inherited IRAs.
  • For Inherited IRAs, the QCD will be reported as a death distribution.
  • Itemization is not required to make a QCD.
  • While the QCD amount is not taxed, you may not then claim the distribution as a charitable tax deduction.
  • When making a QCD, you must receive the same type of acknowledgment of the donation that you would need to claim a deduction for a charitable contribution.

 

To make sure you check all the boxes when doing a Qualified Charitable Donation, a tax advisor can help you determine if both your IRA and charity qualify for QCDs.

 

 

Disclaimer

This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice, or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].