A Qualified Charitable Distribution is a distribution of taxable assets from a traditional or beneficiary Roth IRA paid to a qualified charity. The QCD is tax-free for the IRA owner and may be counted toward your required minimum distribution.
Beginning with the calendar year 2017, the Consolidated Appropriations Act made the QCD provisions permanent meaning individuals age 70 ½ or older can contribute up to $100,000 per year directly from their taxable IRA to one or more charities. The $100,000 limit is the sum of all QCDs for the year, so you may make one lump contribution or several smaller ones throughout the calendar year. For married couples filing a joint return, each spouse may make QCDs from his/her IRA up to $100,000 (for a $200,000 total).
Utilizing this giving solution offers the opportunity for significant charitable giving while avoiding higher tax rates. The contributions made to charity from the QCD are excluded from gross income potentially helping you avoid being pushed into a higher tax bracket and preventing negative impacts of a higher adjusted gross income, such as taxation of social security, loss of medical deductions and Medicare Premium subsidies.
Qualified Charitable Distributions (QCDs)* are reported as AGE BASED CODE 7. There is no special code on the 1099-R. Clients should consult their tax advisor on the proper way to report QCDs to the IRS on their tax returns.
* Additional information about QCDs can be found in the 2017 IRS Publication 590-B.
John and Sally Smith are both 70 ½ years old and are required to withdraw $20,000 each from their IRA. If John & Sally don’t need all or a portion of this income, they can request a QCD to be paid directly to their charity or charities. This contribution goes toward satisfying their required distribution and the withdrawal does not increase their taxable income. If they took the IRA distribution and then decided to make the charitable contribution, the distribution amount would be added to their taxable income which could have a negative impact on social security taxation, Medicare premiums and other things tied to AGI.