5 QCD Rules You Must Know | Ed Slott and Company, LLC

5 QCD Rules You Must Know

By Sarah Brenner, JD
IRA Analyst
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A Qualified Charitable Distribution (QCD) is way for you to move funds out of your IRA to a qualifying charity income tax free. Time is running out if you are interested doing a QCD for 2016. The rapidly-approaching deadline for a QCD for this year is December 31, 2016. If you are thinking this might be a good strategy for you for 2016, here are 5 rules you must know.

1.     Age 70 ½

IRA owners who are age 70½ and over are eligible to do a QCD. Sounds easy, right? This is more complicated than it might sound. A QCD is only allowed if the distribution is made on or after the date the you actually attain age 70 ½. It is not enough that you will attain that age later in the year.

QCDs are not limited to IRA owners. If you are an IRA beneficiary, you may also do a QCD. All the same rules apply, including the requirement that you must be age 70 ½ or older at the time the QCD is done.

2.     Eligible Funds

You may take a QCDs from your traditional IRAs or Roth IRAs. QCDs are also permitted from SEP and SIMPLE IRAs that are not ongoing. An ongoing SEP and SIMPLE plan is defined as one where an employer contribution is made for the plan year ending with or within the IRA owner’s tax year in which the charitable contributions would be made. You may not take a QCD from your employer plan.

QCDs apply only to taxable amounts. You may not transfer your basis (nondeductible IRA contributions or after-tax rollover funds) to charity as a QCD. QCDs are an exception to the pro-rata rule which usually applies to IRA distributions.

Because QCDs apply only to taxable amounts, it is unlikely that a QCD would be done with Roth IRA funds. The only Roth funds that you could be use would be earnings in a Roth IRA when you have not held any Roth IRA for more than five years.

3.     $100,000 Annual Limit

QCDs are capped at $100,000 per person, per year. If you are married, you and your spouse can each contribute up to $100,000 from your own IRAs.

If you withdraw more than $100,000 from your IRA to contribute to a charity, you may not carry over the excess to a future year. You can do a QCD with the first $100,000 of the distribution and the remaining amount will be treated as a taxable distribution. You can take a charitable deduction for the amount over $100,000, if you itemize deductions and otherwise qualify for the deduction.

4.     Satisfy your RMD

Here is good news if you are charitably inclined and must take a required minimum distribution (RMD). You can use a QCD to satisfy your RMD for the year. A QCD can exceed your RMD amount for the year as long as it does not exceed the $100,000 annual limit.

5.     Direct Transfer is Required

If you want to do a QCD, you must make a direct IRA transfer from the IRA to the charity. You should instruct the IRA custodian to make the distribution check payable to the charity of your choice. If a check that is payable to a charity is sent to you for delivery to the charity, it will be treated as a direct payment. Be careful! If you receive a check payable to you from your IRA and then later give those funds to charity, that is not considered a QCD.

 

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Posted in: sarah brenner, QCD, RMD, tax free

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