IRA Qualified Charitable Distributions
By Jeff Aga, CISP, CPC
What is a qualified charitable distribution?
A qualified charitable distribution (QCD) generally is a nontaxable distribution from a Traditional or Roth IRA owned by an individual age 70½ and older and is payable directly to a charitable organization that is qualified under IRC Section 170(b)(1)(A). QCDs may not be distributed from ongoing simplified employee pension (SEP) or savings incentive match plan for employees of small employers (SIMPLE) IRAs. A QCD will count toward an IRA owner's required minimum distribution in the year of the distribution.
Are there limits to how many QCDs an IRA owner may make in a year?
There is no limit to the number of QCDs an IRA owner can make; some IRA owners may want to make multiple QCDs to different charitable organizations. But the IRA owner is limited to a maximum annual exclusion from income of $100,000 for QCDs. Any QCD in excess of the $100,000 limit would be includable in income, and therefore is taxable. Married couples filing a joint tax return each have their own $100,000 exclusion limit.
Is the amount of the QCD deductible as a charitable contribution?
No. QCDs, which are excluded from income, are not taken into account for the charitable contribution deduction on their individual income tax return.
How are QCDs treated when the IRA owner has nondeductible contributions in the IRA?
The amount of the QCD is limited to the amount of the distribution that would be included in income and subject to tax. If an IRA includes nondeductible contributions, the distribution is first paid out of taxable income.
For example, in 2017, Shirley, age 78, requests the trustee of her Traditional IRA to distribute $25,000 directly to her church (a qualified charitable organization). The fair market value of Shirley’s IRA is $30,000 consisting of $20,000 of deductible contributions and earnings and $10,000 of nondeductible contributions (basis). The part of the distribution that would be includable in Shirley’s income ($20,000) is a QCD. If Shirley itemizes deductions and files Schedule A with her Form 1040, the $5,000 nondeductible (basis) portion of the charitable distribution can be deducted as a charitable contribution, subject to adjusted gross income limits. The $20,000 QCD portion may not be deducted since it was not included income. Shirley should consult with her tax advisor and file Form 8606 to ensure proper reporting of the QCD, as well as retain proof of the charitable contribution.
Our client is age 71 and is the beneficiary of her brothers IRA. She wants to make a qualified charitable distribution (QCD) from her inherited Traditional IRA. Are QCDs available to beneficiaries?
Yes. Beneficiaries who are over the age of 70½ may exclude from income QCDs they make from their inherited IRAs. The beneficiary will follow the same rules for QCDs as IRA owners.