In late 2015, Congress made permanent a rule that allows certain individuals the ability to make charitable donations directly from their IRA.  Named a “qualified charitable distribution” (QCD), individuals who are over age 70 ½ and subject to required minimum distributions (RMDs) can distribute money directly from their IRA, up to $100,000 per year.  When done correctly, these distributions count toward your RMD for the year.

The main benefit of making a QCD instead of taking the distribution and then writing a check to the charity is that it reduces your adjusted gross income (AGI).  This may:

  • Reduce the amount of your Social Security benefits that are subject to taxes.
  • Reduce exemption phase-outs.
  • Reduce the net investment tax.
  • Reduce additional Medicare premiums.
  • Increase certain deductions on your tax return such as medical expenses and miscellaneous deductions subject to 2%.
  • Increase eligibility to make Roth IRA contributions, if you are still working.

To make a QCD, distributions must transfer directly from the custodian where your IRA is held to the charity.  And when considering this strategy, gifting appreciated stock directly to the charity should also be assessed as a potential alternative.

Reach out to us if you would like to learn more about how a QCD may benefit your tax situation.