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New IRS Guidance on Qualified Charitable Distributions
By Joe Cicchinelli, IRA Technical Expert
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As we reported earlier, the American Taxpayer Relief Act of 2012 (ATRA) extended the qualified charitable distribution (QCD) rules retroactively for 2012 and through 2013. Two special rules allow IRA owners to have a donation made before February 1, 2013 be treated as a 2012 QCD. In response, the IRS posted some guidance on its website titled “Charitable Donations from IRAs for 2012 and 2013.” The IRS link (case sensitive) is: http://www.irs.gov/Retirement-Plans/Charitable-Donations-from-IRAs-for-2012-and-2013.
A QCD is a tax-free distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) for an IRA owner or beneficiary age 70 ½ or older that is paid directly to a qualified charity. The maximum limit is $100,000 per taxpayer per year, and a QCD can be used to satisfy any IRA required minimum distributions (RMDs) for the year.
December 2012 Distributions
An IRA distribution that was paid to the taxpayer last year, in December 2012, can now be forwarded to a qualifying charity by January 31, 2013 and be treated as a 2012 QCD if it meets all of the QCD rules except for the rule that QCDs must be paid directly to a charity. This payment to the charity must be in cash; not property.
2012 QCDs Can be Made by January 31, 2013
An IRA distribution paid directly to a qualified charity by January 31, 2013 can be elected by the taxpayer for 2012 QCD treatment if the distribution meets all of the QCD rules. The IRS recommends that you keep records for proof regarding any 2012 QCD made in January 2013.
A QCD made in January 2013 that is treated as a 2012 QCD satisfies your untaken 2012 IRA RMD if the amount of the QCD equals or exceeds your 2012 RMD. However, that January QCD for 2012 cannot satisfy your 2013 RMD.
IRA RMDs are based on your prior December 31 IRA balance. In calculating the RMD for 2013, the IRS said that a January 2013 QCD for 2012 should be subtracted from your December 31, 2012 IRA balance. If not, you will take more than your 2013 RMD by using a higher IRA balance.
IRA owners who treat a January 2013 payment to a charity as a 2012 QCD will add a note to their 2012 Form 1040, U.S. Individual Income Tax Return, by entering the QCD amount on Form 1040 Line 15a, and entering the letters “QCD” next to Line 15b. The IRA custodian will report the QCD as a normal distribution in the year it was paid.
• New IRS guidance highlights new Qualified Charitable Distribution (QCD) rules for 2012 and 2013.
• IRA distributions that were paid to you in December 2012 can now be treated as a QCD for 2013 if that amount is forwarded to a charity by January 31, 2013.
• A direct distribution to a charity in January 2013 can be used as a 2012 QCD if you choose.