Qualified charitable distributions

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Qualified charitable distributions (QCDs) allow individuals to donate to charity as a tax-free IRA distribution.

QCDs can be included as part of a Required Minimum Distribution.[1]

There are several restrictions:[2][note 1]

  • The maximum deductible contribution limit is $100,000
  • Distributions must be made directly to the charitable organization
  • The IRA owner must be 70 1/2 or over

QCDs must come from an individual IRA. An SEP or SIMPLE IRA does not qualify.[1][note 2]

If you file a joint return, your spouse can also have a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income.[1]

Benefits of a QCD

  • Allows those who use the standard deduction to realize a tax advantage from a charitable contribution.[note 3]

Required Minimum Distributions (RMDs) and additional distributions from an IRA are part of your taxable income. QCD's do not count as taxable income, so you can lower your taxable income by the amount of your QCD - thereby lowering your taxes. This is beneficial if you use the standard deduction instead of itemizing.

  • Allows those at or near the earnings limit for higher medicare premiums to lower their taxable income.

Notes

  1. The Office of the Law Revision Counsel is the offical source of US law.
    H.R.2029 - 114th Congress (2015-2016): Consolidated Appropriations Act, 2016 contains the Protecting Americans from Tax Hikes Act of 2015 which made the tax law permanent on December 18, 2015.
  2. IRS Notice N-07-07 (A-36) defines a QCD only for an IRA or Roth IRA (neither can be an SEP or SIMPLE IRA). As employer retirement plans (such as a 401(k) or 403(b)) are not mentioned, they do not qualify for QCDs.
  3. In addition to the benefits of giving to charity, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from an IRA. Keeping your taxable income lower may reduce the impact to certain tax credits and deductions, including Social Security and Medicare. Ref: Qualified Charitable Distributions (QCDs), Fidelity Investments, viewed August 04, 2017.

See also

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