Congress Makes Strategy Permanent for IRA OwnersSubmitted by Grunden Financial Advisory, Inc on February 25th, 2016
Congress just made it a little easier for people to give money from their IRAs to charities. This strategy, called a Qualified Charitable Distribution (QCD), was made permanent in 2016 and allows IRA account owners older than age 70.5 to give some or all of their Required Minimum Distributions (RMDs) from the IRA to a charity. The strategy is not available to anyone who is not subject to RMDs.
To make a QCD, the distribution must go directly from an IRA to the charity without the IRA owner ever receiving the money. By going directly to the charity, the QCD fulfills the annual RMD requirement, but isn’t shown on the tax return as a distribution. Many people currently take their RMD, show it as income, and then deduct charitable contributions by itemizing deductions, but the QCD strategy is an improvement to giving that way.
By making a QCD and not showing the IRA distribution on a tax return at all, the IRA owner is able to show a lower Adjusted Gross Income (AGI). This is important because AGI is used in numerous tax calculations, including the taxation of Social Security benefits, the medical expense deduction, miscellaneous itemized deductions, and more. By keeping the annual Required Minimum Distribution out of Adjusted Gross Income by using the Qualified Charitable Distribution strategy, many people will improve their tax situation. Based on our best understanding, completing a QCD will only improve or maintain a person’s tax situation.
If you are over age 70.5, have an IRA, and give to charity, please give us a call to discuss whether to pursue a QCD for 2016. We will need your most recent tax return so we can work with you to determine if the QDC is in your best interest.