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Qualified Charitable Contributions

Qualified Charitable Contributions

  • Tax

A QCD is a direct transfer of funds from your IRA custodian to a qualified charity. QCDs are not taxable and can be counted toward satisfying your required minimum distribution (RMD) for the year, so long as certain requirements are met.  This is a great opportunity for taxpayers to get a tax benefit from their charitable contributions, even if they no longer itemize deductions.  The 2017 Tax Cuts and Jobs Act resulted in many taxpayers shifting from itemizing deductions to taking the standard deduction, primarily due to the $10,000 state and local tax (SALT) limitation, as well as the significant increase in the standard deduction.

Some have questioned whether a taxpayer may still make a qualified charitable contribution from an IRA to a charity in 2020, now that the CARES Act has waived the minimum distribution requirements for 2020.

The answer is yes!

While we generally think of QCDs in connection with required minimum distributions, in reality, the law allows individuals over 70 ½ to make up to $100,000 in tax-free charitable contributions directly from their IRAs.  That did not change when the RMD age was raised from 70 ½ to 72 by the December 2019 SECURE Act, nor did it change when the RMD requirement was waived for 2020 under the recently passed CARES Act.

However, there is one catch (isn’t there always?) – the SECURE Act also removed the age restriction for making traditional IRA contributions, thus allowing working septuagenarians and octogenarians to make deductible IRA contributions.  For those folks, the QCD exclusion is reduced by any deductible IRA contributions made in the same year.

Lastly, in order to qualify for the income exclusion, you must have a contemporaneous, written acknowledgment from the qualifying charitable recipient of your QCD.  The acknowledgment must include the same information required in order to deduct a charitable contribution, which is:

  • Name of organization
  • Amount of contribution
  • Statement that no goods or services were provided by the organization in return for the contribution, or, when applicable, a description and a good faith estimate of the value of the goods or services that were provided in return for the contribution.

In summary, if you are at least 70 ½ and own a traditional IRA,  QCD’s are still your most tax-efficient method for charitable giving in 2020 and beyond.

Visit our COVID-19 Resources Center to learn more about the CARES Act and other recent legislation.

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