As the flood waters slowly recede in the Houston area, many people are asking themselves how they can help the victims of Hurricane Harvey. For those who have IRAs and are charitably inclined a Qualified Charitable Distribution (QCD) may be one way you can help.
Not everyone can do a QCD. A QCD is only allowed if the distribution is made on or after the date that you actually attain the age 70 ½. It is not enough that you will attain that age later in the year. Not all retirement accounts will work either. You may take a QCD from your traditional IRAs or Roth IRAs from pre-tax amounts only. QCDs are also permitted from SEP and SIMPLE IRAs that are not ongoing. An ongoing SEP or 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 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. Here is good news if you are looking to help those affected by Hurricane Harvey and must take a required minimum distribution (RMD). You can use your 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.
Another benefit to a QCD is that the amount transferred from the IRA to the charity is not included in your adjusted gross income (AGI) for the year. By not including the distribution in AGI you can potentially avoid the loss of exemptions, deductions, credits and phase outs, AMT (alternative minimum tax), the 3.8% surtax on net investment income, and the increase in Social Security premiums for Medicare Part B and Part D. If you do not itemize your deductions, a QCD provides a way to get a tax benefit for your donation to those affected by Harvey.
How to Do a QCD
Do you think that a QCD may be a way for you to help? Here is what you need to know. If you want to do a QCD, you must make a direct IRA transfer from your IRA to the charity. You should instruct your 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. 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.
Unfortunately, whenever disaster strikes, there are those looking to profit. The IRS has already issued a warning about fake charity scams arising due to Hurricane Harvey. Be very careful about who will get your IRA funds. Also keep in mind that the tax rules are very particular about what is a “charity” for QCD purposes. For example, you cannot simply take your IRA funds and give them to family who has lost their home due to Harvey. The charity must be a public charity as defined under the tax code. You will want to be sure that the Harvey relief organization you choose to receive your IRA funds fits that definition.