Donating IRA Assets to Charity

Qualified Charitable Distribution provision Offers a Tax Break for Retirees

The provision, referred to as a qualified charitable distribution (QCD), allows retirees age 70½ and older to donate up to $100,000 tax free from their IRA each year.* Generally, when you take a distribution from your IRA, it is treated as taxable income. Under this provision, made permanent in the 2015 federal spending and tax package, those assets are excluded from income if the distribution is made directly to charity.

Donating IRA assets can be a financially rewarding strategy for both you and the charity. As always, you should talk with your financial representative or tax advisor before making a decision that alters your tax situation. Following are several examples where it may be appropriate.

Eligibility

IRA account owner must be age 70½ or older at time of IRA distribution in order to take advantage of this provision. Rule applies only to traditional, rollover, and Roth IRAs; SEPs and SIMPLE IRAs are generally excluded.* Distributions of non-deductible IRA contributions also do not qualify. The provision is also available to individuals who inherit an IRA, provided that they are at least 70½ years old.

Annual Limit

Maximum amount of a taxpayer’s qualified charitable distribution (QCD) that may be excluded from taxable income is $100,000 per tax year and may include required minimum distributions (RMDs). The amount of the QCD is reduced by the cumulative amount of deductible IRA contributions made for all taxable years ending on or after the date the taxpayer attains age 70½.

Qualifications

Distribution must be made to a qualifying charity; private foundations and donor-advised funds are not eligible. Consult a tax professional for additional information.

Direct Contribution

The IRA trustee or custodian must make the distribution directly to the charity. Distributions made payable to the IRA owner and transferred to the charity will not qualify.

It’s important to consider your tax situation before deciding whether to make a charitable contribution from your IRA. Be sure to work closely with your financial representative to determine whether this tax provision is right for you.