Time flies when you are charitably inclined!

In 2013 I wrote the article “Should You be Making Charitable Contributions From Your IRA?”  highlighting the benefits of utilizing QCDs. Since that time, we have processed thousands of QCDs for clients, helping them optimize their charitable giving while controlling tax and Medicare IRMAA (Income-Related Monthly Adjustment Amount) brackets. However, the administrative side of tracking and reporting QCDs still remains a challenge. Here are four best practices our clients may want to utilize:

  1. Consolidate Gifts: We fill out a form for each charitable distribution to make sure the check is made out directly to the charity from the IRA. If all charitable gifts can be given once per year with amounts of $1,000 or more, this process is easier to track and allows for more efficient management of the portfolio. Bonus points for providing a written list of QCDs that includes the charities’ official name and current mailing address (it’s sometimes a PO Box!)
  2. Where should your checks be mailed? One shortcoming of the QCD process is no memos or additional information can be added to the check. If there is a special fund, additional instructions, or you just want to include a note of encouragement, you can have the checks sent to you first and then forward them on to the charity yourself with your note included. Checks would still be made payable and addressed to the charity, just mailed to you to send on. Although this option takes more effort on your part, it would also give you the opportunity to request a gift letter.
  3. Gift letter request: If audited for QCDs you will need a gift letter from the charity. With checks being sent directly from the custodian, sometimes the charities forget to provide this gift letter or don’t have your address on file. Communicate with the charity to confirm they received your QCD and make sure they have your information (address) to send a gift letter.
  4. Do not forget to report! Another shortcoming of the QCD process is the QCDs are not automatically deducted from your 1099-R form. The custodian simply checks the “Taxable Amount Not Determined” box. You will want to remember to report the QCDs or provide information to your tax preparer to ensure you receive credit for the donation. Having the written list from step 1 and the gift letters from step 3 will help you with this process.

QCDs are a powerful tool and utilizing these four best practices will make sure the process is seamless.

W. Devin Wolf, CFP®
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