Qualified Charitable Distributions (QCDs) Ended 12/31/09

Monday, January 25, 2010

By Marvin Rotenberg, IRA Technical Expert

As you may recall from previous articles appearing here, a provision in the Pension Protection Act of 2006 (PPA 06) allowed IRA owners and beneficiaries age 70 1/2 and older to make tax-free distributions of otherwise taxable dollars from traditional IRAs and Roth IRAs to qualified charitable organizations. Such distributions were also allowed to be made from SEP IRAs and SIMPLE IRAs provided no employer contributions were made for the same tax year. The QCDs were limited to $100,000 per year, per IRA owner or beneficiary, and the check had to be payable directly to the eligible charity. While this provision originally expired on December 31, 2007, it was retroactively extended through December 31, 2009 by the Emergency Stabilization Act of 2008. As of this writing, legislation that would allow QCDs to be made beyond 2009 has not been passed.

A bill currently under consideration in Congress would reactivate QCDs for 2010. There appears to be much support among legislators for bringing back QCDs this year, so perhaps the bill stands a good chance of being passed. Until then, if you are age 70 1/2 or older and want to give money to your favorite charity you may want to wait a bit to make that donation. If QCDs are resurrected this year, you will be able to use up to $100,000 of your IRA to make your charitable donation while completely avoiding income tax. The distribution will also satisfy your required minimum distribution (RMD), up to 100,000, for the year.

Keep in mind that if QCDs do not reappear in 2010, RMDs for traditional IRA owners in their second or later distribution year, and for inheriting beneficiaries, must be completely distributed by December 31st in order to avoid a 50% tax penalty.

We will continue to keep you updated on the status of QCDs for 2010. Stay tuned to The Slott Report for future commentary.
 

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