Considering the Qualified Charitable Distribution
From the year you turn 70 ½, you will be submit to the Required Minimum Distributions (RMDs) rules.
As part of our ongoing services provided to clients, we attempt to assist with coordinating Required Minimum Distributions. We try to make sure that everyone’s RMD has been considered be the December 31st date.
Current tax law specifies that once you reach age 70½ you must begin making taxable withdrawals from traditional IRAs and many other retirement plans. These minimum distributions are calculated annually based on your age, the account balance at the end of the previous year, marital status, and spouse's age. If you do not take the annual minimum distribution, you may be subject to a 50% penalty on your underpayment, plus ordinary income tax as the funds are withdrawn. Persons age 70½ and older may find this calculator most useful.
Here is a link that may help determine the Required Minimum Distribution from an IRA or other qualified retirement plan, and help estimate an RMD:
Since the new tax bill has passed in 2017 (the Tax Cut and Jobs Act), a lot of people may now want to consider a Qualified Charitable Distribution (QCD). A Qualified Charitable Distribution takes your RMD and donates your distribution directly to charity. A properly processed Qualified Charitable Distribution may avoid unwanted taxable withdrawals. Rules differ for 401(k) accounts and various other accounts, so be sure to look into the details of your unique situation.
For those of us who are charitably inclined or who tithe on a regular basis, a Qualified Charitable Distribution may be right for you. This is becoming a popular way for clients to support their favorite charities while also minimizing the tax consequences of an RMD. But it’s not without some complications.
To help make it easier, we are providing the resource, “Can I Do a Qualified Charitable Distribution From My IRA?” This flowchart addresses common issues pertaining to Qualified Charitable Distribution rules:
- Age requirements
- Impact of employer contributions
- Distribution limits of the distribution
- Single vs married filing jointly
- Public vs Private implications
- Step-by-step process
As outlined in the IRS Publication 590-B (2018), Distributions from Individual Retirement Arrangements (IRAs):
A qualified charitable distribution (QCD) generally is a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax-deductible contributions. You must be at least age 70½ when the distribution was made. Also, you must have the same type of acknowledgment of your contribution that you would need to claim a deduction for a charitable contribution. See Records To Keep in Pub. 526.
The maximum annual exclusion for QCDs is $100,000. Any QCD in excess of the $100,000 exclusion limit is included in income as any other distribution. If you file a joint return, your spouse also can 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.
Consider discussing the Qualified Charitable Distribution with your tax advisor.
As always, we’re here to help, so please reach out if you’d like to discuss this further.