IRA loophole for charitable gifts now permanent
September 2016 | Christopher M. Petillo, CPA, JD, CELAIf you are an IRA owner, age 70 ½ or older, who must take a required minimum distributions, and if you are charitably inclined, you may be interested in this loophole that was permanently extended by Congress in December.
A qualified charitable distribution (QCD) allows you to make tax-free transfers of up to $100,000 directly from your IRA each year to qualified charities. Married taxpayers with separate IRAs can give up to $200,000 total per year, but no more than $100,000 may be distributed from each spouse's IRA.
As icing on the cake, it satisfies your RMD for the year as to your IRA accounts (caution – see below if you are a TDA, 401(k) or 403(b) owner).
Prior to this law, if you wanted to use your IRA money to make a gift to charity during your lifetime, you would have to: make a withdrawal, subject to income taxes; make a contribution to the Charity; and take an itemized deduction on Schedule A, subject to AGI limitations.
With a Qualified Charitable Distribution, you can exclude from taxable income any IRA funds directly transferred to a charity as an outright contribution. This gives the IRA distribution exclusion from income treatment, which is a more favorable tax result than an itemized deduction. It also prevents your Adjusted Gross Income from increasing, which can affect your premium for Medicare Part B and Part D.
Certain limitations apply. For example, you must be at least 70½ years of age when the gift is transferred. The gifts must be made directly from your IRA to a public charity for their outright use (i.e., not to a private foundation, or for a charitable gift annuity or charitable remainder trust).
Transfers must come from the IRAs directly to the charity. For example, if you have retirement assets in a TDA, 403(b) or 401(k), for example, you must first roll those assets into an IRA and then make the transfer from the IRA directly to the charity. You cannot do a Qualified Charitable Distribution from a SEP-IRA or SIMPLE IRA.
If you have any questions or concerns about this article, please contact your Legal Service Plan’s National Legal Office.
A qualified charitable distribution (QCD) allows you to make tax-free transfers of up to $100,000 directly from your IRA each year to qualified charities. Married taxpayers with separate IRAs can give up to $200,000 total per year, but no more than $100,000 may be distributed from each spouse's IRA.
As icing on the cake, it satisfies your RMD for the year as to your IRA accounts (caution – see below if you are a TDA, 401(k) or 403(b) owner).
Prior to this law, if you wanted to use your IRA money to make a gift to charity during your lifetime, you would have to: make a withdrawal, subject to income taxes; make a contribution to the Charity; and take an itemized deduction on Schedule A, subject to AGI limitations.
With a Qualified Charitable Distribution, you can exclude from taxable income any IRA funds directly transferred to a charity as an outright contribution. This gives the IRA distribution exclusion from income treatment, which is a more favorable tax result than an itemized deduction. It also prevents your Adjusted Gross Income from increasing, which can affect your premium for Medicare Part B and Part D.
Certain limitations apply. For example, you must be at least 70½ years of age when the gift is transferred. The gifts must be made directly from your IRA to a public charity for their outright use (i.e., not to a private foundation, or for a charitable gift annuity or charitable remainder trust).
Transfers must come from the IRAs directly to the charity. For example, if you have retirement assets in a TDA, 403(b) or 401(k), for example, you must first roll those assets into an IRA and then make the transfer from the IRA directly to the charity. You cannot do a Qualified Charitable Distribution from a SEP-IRA or SIMPLE IRA.
If you have any questions or concerns about this article, please contact your Legal Service Plan’s National Legal Office.