At the end of 2015, Congress (as part of the PATH Act) finally provided some relief to the IRA Charitable Rollover (more popularly known as the Qualified Charitable Distribution [QCD]) uncertainty and made the QCD permanent!
What exactly is a QCD, and how will it benefit me?
If you are over 70½ and want to make a charitable donation, it may provide a tax benefit to make that contribution directly from your IRA. You simply tell your IRA custodian that you would like to take a distribution from your IRA but to make the distribution payable to the ministry or charity to which you would like to make the donation. The custodian will mail the check to you for delivery to your church, ministry, or charity. This will allow you to designate your gift to a particular part of the ministry (e.g., building fund, missionary fund, etc.). You have to be 70½ on the day you make the distribution, not just turn 70½ in the year you make the distribution.
The distribution qualifies as part (or all) of your Required Minimum Distribution and can be as high as $100,000 per year. You will not be able to deduct the contribution on the Schedule A of your Federal Income Tax return, but you can deduct it on the first page of your 1040. You should include the QCD as part of your total IRA distribution but not include it on the “taxable” line. Simply write the letters “QCD” in the margin next to the “taxable” line, and that will notify the IRS that the reason the distribution amount is larger than the taxable amount is due to the QCD.
Deducting the distribution on the front page of your 1040 instead of on the Schedule A has some potentially huge advantages and no disadvantages. First of all, if you don’t have enough deductions to itemize, you wouldn’t file a Schedule A and would not get any tax advantage to making the contribution. Secondly, by reducing your taxable IRA distribution, the Adjusted Gross Income (AGI) at the bottom of the first page of your 1040 will be lower. The Adjusted Gross Income line is the one that is used to determine how much of your Social Security will be included as taxable income. The AGI is also used to determine how much of your medical expenses and miscellaneous deductions can be included as an itemized deduction.
So if you are planning to give money to your church or any other qualified 501(c) ministry or charity—and you are at least 70½–you should consider making those contributions with a QCD from your IRA. By the way, an Inherited IRA or a Donor Advised Fund doesn’t qualify–sorry!
