If you are 70½ years of age or older, have a standard IRA and are interested in making qualified charitable distributions, the following will be of interest to you. By making donations directly from your IRA to charity, you will avoid having to pay income taxes on the required minimum distribution while at the same time meeting your charitable gifting objectives. With the Tax Cut and Jobs Act of 2017 nearly doubling the standard deduction for taxpayers and capping the deduction for state and local taxes at $10,000, many taxpayers who had previously itemized deductions will be opting for the standard deduction. While these taxpayers will no longer take a charitable deduction on their income tax returns, they can make a qualified charitable distribution directly from an IRA with pre-tax dollars. Some important points to be aware of with respect to qualified charitable distributions from an IRA, are as follows:
- The taxpayer must be age 70½. Do not make a distribution sooner, even if it is the year in which the taxpayer will have a required minimum distribution.
- A qualified charitable distribution is a nontaxable distribution made directly by the trustee of an IRA (other than a SEP IRA or SIMPLE IRA) to a publicly supported charity. Excluded are: donor advised funds, private foundations and split interest trusts. While there may be some exceptions, to be on the safe side, consider charities that are widely recognized.
- After the death of the IRA owner, a beneficiary of an inherited IRA who has attained age 70½ can make a qualified charitable distribution.
- The maximum annual exclusion for qualified charitable distributions is $100,000, with no provision for carryover of any unused portion of the $100,000. One can, however, donate more than the required minimum distribution. For example, if the required minimum distribution amount is $10,000, and a charitable contribution of $15,000 is made from the IRA, the $15,000 is excludable from income.
- Payments must be received by the charity no later than December 31. Consider making the payments by December 15 to assure that the contribution is recognized in a timely manner.
- If the IRA owner makes the qualified charitable distribution from multiple IRAs, the aggregate maximum exclusion amount for the year is $100,000.
- For a married couple filing jointly, the $100,000 exclusion limit applies to each individual IRA owner. Thus, if both spouses have IRAs, a combined qualifying charitable distribution of up to $200,000 can be made.
- The amount of the qualified charitable distribution is limited to the amount of the distribution that would otherwise be includible in income. As such, while a charitable donation can be made from a Roth IRA, because Roth distributions are generally tax-free and not subject to required minimum distributions, there are no tax benefits to doing so.
- A taxpayer making a qualified charitable distribution must obtain the same type of acknowledgment of the contribution that would be required to claim an itemized deduction for a charitable contribution.
- A distribution from an IRA made to a charity is not considered a qualified charitable distribution if one receives a benefit, such as a dinner or thank-you gift, as a result of making the donation.
- If the deductible amount is reduced because the taxpayer received a benefit in exchange for the donation, or if a deduction is not allowable because the taxpayer did not obtain an acknowledgement of the donation from the charity, the exclusion from income is not available with respect to any part of the IRA distribution.
While the law governing qualified charitable distributions from IRAs has been on the books for some time, it was only recently made permanent. Given the changes in the tax laws, it is likely that more people will be utilizing this method to make their charitable donations.
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