Retirees age 70 1/2 and older can acquire a special tax break with donations from their individual retirement account by using qualified charitable distributions, also known as QCDs.
A QCD is a direct transfer of funds from your IRA custodian or trustee to the charity. If you make a contribution to a charity after you receive a distribution from your IRA, it does not count as a QCD. The maximum annual amount that can qualify for a QCD is $100,000. This applies to the sum of QCDs made to one or more charities in a calendar year. Contributions above $100,000 are treated as non-QCDs. QCDs could also be counted toward your required minimum distributions (RMDs) for the year once you turn 72, as long as certain rules are met.
When you make a QCD, it excludes the amount donated from your taxable gross income. The lower taxable income can help with certain tax credits and deductions, and can also help prevent price hikes with medicare since it reduces your gross income. Additionally, it means you could take advantage of the high standard deduction since the QCD will not require itemized deductions for charitable donations.
An important thing to know and remember is QCD transfers are not shown as separate amounts on Form 1099-R that your IRA custodian issues. It will show the total amount of distributions from the IRA during the year. It is up to you to keep track of how much was allocated for QCDs versus other distributions and report this on your tax forms.
If you have questions about this or want to learn how you can take advantage of QCD’s, contact us or give us a call 916-299-6800.
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