We receive quite a few questions about Qualified Charitable Distributions. What is a Qualified Charitable Distribution, you ask?
A Qualified charitable distribution (also known as a QCD) is a tax strategy that allows individuals who are at least age 70½ and have Traditional and/or Inherited IRAs to distribute directly from their IRAs to a 501(c)(3) nonprofit (up to $100,000 annually) with no federal income tax consequences [Source: Wells Fargo Advisors CAR-0323-04651]
So QCDs are IRA distributions that would otherwise be taxable. QCDs are not included in your Adjusted Gross Income or AGI, so using this strategy can lower your income and potentially decrease your income tax bill. Although you cannot take a charitable tax deduction for a QCD, reducing your AGI may provide a better tax benefit. If you normally make donations to charities anyway, you may want to consider making those donations from your IRA.
QCDs can satisfy all or part of your Required Minimum Distribution. The key to remember though is that you must be at least 70 ½ years old to make a QCD. So even if you have an Inherited IRA in which you must take a Required Minimum Distribution, you cannot utilize this strategy if you are not at least 70 1/2.
Another point to keep in mind is that the check must be payable directly from your IRA to the qualifying charity. We can mail the check for you or you may want to mail the check to the charity yourself, to ensure that the charity acknowledges that the gift is from you. You can also get a checkbook for your IRA so that you can send checks directly to the charities yourself. Be sure, however, that the checks have cleared by the last business day in December for the distribution to count for the current tax year. A good rule of thumb is to complete your charitable giving by the beginning of December.
QCDs require no special tax reporting. Your QCDs will be included in the amount on the IRS Form 1099-R that is generated for your IRA every January. You will not receive a separate tax document for the QCDs,
We welcome the opportunity to work with you and your tax advisor to create an IRA strategy designed to help you achieve your desired result.
Wells Fargo Advisors Financial Network is not a legal or tax advisor.