The IRS has shared that persons who are subject to required minimum distributions (RMDs) from their IRAs may be able to turn those distributions into a qualified charitable donation (QCD), thus making the distribution non-taxable. Simplified Employee Pension Plans and Savings Incentive Match Plans for Employees’ IRA accounts do not qualify for this treatment, however.
Making a QCD will reduce your taxable income while supporting the qualifying charitable organization of your choice. This can be accomplished without regard to meeting the standard deduction or itemizing deductions.
A QCD is a nontaxable distribution made directly by the IRA trustee, usually a bank or investment firm, to a charitable organization that meets IRS guidelines to receive tax-deductible donations. You can verify that the organization qualifies to receive tax-deductible donations by going to IRS.gov/TEOS.
To take advantage of this opportunity, there are a few guidelines:
- You must be at least 70 ½ years old on the date of the distribution.
- The distribution will count toward your current year (2022) RMD.
- You must have an acknowledgement of the contribution. Generally charitable organizations send out acknowledgements by January 31 of the following year. Your IRA trustee can also provide documentation of the amount sent, the date, and organization to which it was sent.
- You must claim the QCD as income, but you will also claim a charitable deduction for the same amount. Your financial institution will report your distribution on Form 1099R, regardless of whether it is a QCD or a distribution that you received. So, you will still receive a 1099R after year end.
- The maximum amount you may contribute annually through IRA distributions is limited to $100,000 each by you and by your spouse.
- You may not claim a QCD for more than the amount of the distribution that would count as income if not taken as a QCD.
- Additional reporting may be required if you take distributions from your traditional IRA during the year in addition to the amount for which you are making a QCD or if you are making a QCD from your Roth IRA.
- If you have made QCDs in prior years and are over the age of 70 1/2, the annual contribution limit that you may exclude from income will be reduced.
For additional guidance, contact your R&A professional.