As of 12/18/2015 Congress has made the QCD (Qualified Charitable Distribution) permanent. Previously the “IRA Charitable Rollover” had a termination date and Congress had to annually approve the QCD. With this most recent legislation the termination date has been removed, effectively making the QCD permanent. Although the article below references years 2012 and 2013 the information is still applicable today. If you are already making significant donations to charities, are not able to itemize deductions, your charitable contributions are capped, or you could benefit from a lower adjusted gross income (AGI), the answer is likely yes. The fiscal cliff tax deal extended a provision allowing IRA owners above age 70.5 to directly contribute up to $100,000 each year to charities. In addition, a special rule allowing qualified charitable distributions made in January of 2013 to be retroactively applied to the 2012 tax year was passed. How might this benefit you? Not Able to Itemize Deductions If you are giving to charities but can’t itemize tax deductions, you are not able to take advantage of the tax deduction associated with the charitable contributions. If you made the contribution to the charity directly from your IRA, the distribution would never show up as income on your tax return, effectively giving you the full deduction. Charitable Contributions are Capped The deduction you can take for making charitable contributions is limited based on your AGI. For example, a cash gift to public charity can only be deducted up to 50% of your AGI with the excess carried forward five years. If you are an extremely high giver, you may be able to get a bigger tax break in the current year by contributing directly from your IRA. Don’t Need your Required Minimum Distribution (RMD) If you are required to take an RMD from your IRA account, it will show up as ordinary income on your tax return. However, the provision allows a charitable contribution from your IRA to satisfy your RMD. So if you are already giving to charities and don’t really need the money from your RMD, you can get the tax benefits, satisfy your RMD, and accomplish your charitable goals all at once. Having a Lower AGI Would Provide Other Benefits Many deductions, exemptions, and credits are tied to your AGI in the tax code. By giving from your IRA directly to a charity, this income would never be included in your AGI. The reduced AGI may benefit you by making it so you aren’t phased out of certain deductions/credits, lowering your 2% threshold on miscellaneous itemized deductions, lowering your AGI threshold for medical deductions, etc. If you think this strategy may benefit you, let us know. Remember, in order to take advantage of the provision allowing you to retroactively apply a 2013 charitable distribution from your IRA to the 2012 tax year, the rollover needs to made this month!
Devin Wolf, CFP® serves as our Chief Investment Officer (CIO) and leads our 401(k) branch. As a wealth manager Devin is responsible for delivering comprehensive financial solutions to high net worth clientele. His expertise in navigating complex situations has lead to working with business owners and clients with taxable estates.