Qualified Charitable Distributions (QCDs) are distributions from your IRA that go directly to a charity without paying any taxes. For example, if you wish to donate $10,000 towards your church, you could do a $10,000 distribution to your church from your IRA. As long as the money goes directly to the church or the check is made payable to it, that $10,000 is not taxable. As a bonus, that $10,000 also counts towards your Required Minimum Distribution (RMD).
QCDs were not part of permanent legislation. For years, Congress would renew QCDs for a single year. Would they renew it next year? You never knew. Fortunately, a bill called the Protecting Americans from Tax Hikes (PATH) Act of 2015 made QCDs permanent.
There are some important rules when dealing with QCDs. Here are a few of them:
- They only apply to IRA owners or beneficiaries who are actually 70 ½ or over. If you aren’t 70 ½ yet but will be later this year, you have to wait until you actually 70 ½.
- Maximum contribution of $100,000
- Counts towards RMD
- Must be made by direct transfer or a check payable to the charity.
- Does not count towards deductions, but is not included in income.
The PATH Act really helps us by making QCDs permanent. Knowing that you can do one each year helps you do better tax planning for now and the future. If you have questions on doing QCDs, please give us a call at (702) 870-7711.