Qualified Charitable Distributions

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Gray Easterling
Gray Easterling

Qualified whats?  A qualified charitable distribution (QCD) is a tax-free distribution from your IRA to certain types of eligible public charities. They have been around for almost a decade and, in 2015, this tax planning tool has been made permanent. Let’s review some of the rules related to this action, as summarized in an August 1, 2016 online memo from Financial Planning magazine. To obtain the tax benefits for doing a QCD to an IRA, you must abide by specific guidelines related to age, dollar limits and eligible charities. The distribution check cannot be made payable to the IRA owner; it must be made payable directly to the charitable organization. The check can be delivered to the owner and forwarded to the charity. If the funds are made payable to the owner and endorsed over to the charity, there will be taxable income to the owner.  The owner must be at least 70 ½ years old on the date of the distribution. The maximum dollar amount for a QCD is $100,000 per year, per taxpayer. Thus, a married couple could generate $200,000 for a charity, assuming each spouse had their own IRA and the distributions came from the respective IRA’s.

 

QCD’s have to be made from individual IRA’s. A Simple IRA, a SEP, or any type of employer retirement plan does not qualify for the tax-free distribution. Distributions must go to a public charity as described in IRC Section 170(b)(1)(A) and cannot go to a private foundation, nor may a QCD go to a charitable supporting organization or a donor advised fund. The distribution must be one that would qualify for a full charitable deduction under Section 170. So, why jump through all these hoops? Most importantly, a QCD is not taxable to the IRA owner. Also, to the extent the owner is required to take a required minimum distribution (RMD), the QCD is deemed to satisfy the RMD without incurring taxable income. Here is one important detail that must be observed: a RMD is presumed to be satisfied by the first distribution that comes out of the IRA for the year. It cannot be rolled back into another IRA, so once a RMD occurs, it is irrevocably distributed and taxable. Your QCD has to be the first distribution from your IRA in a specific year or you will generate unwanted taxable income. Because of the complexity of these rules, please be sure and consult with your tax and financial advisors before making a qualified charitable distribution. Don’t shy away from them, but make sure you know the pros and cons.

 

Football season is under way. I played in high school in the mid 60’s when a 140-pound running back could compete and not be completely undersized at that weight. In the third or fourth game, I was tackled from behind and ended up with a torn ligament in my ankle. As I was limping off the field, a teammate suggested that if I had run more aggressively and I would not have gotten hurt. He may have been right (don’t think so) but I was not appreciative of his attitude and remember it every time I see him. Guess I should turn it loose. God would tell me to forgive and forget. I should remember Psalm 103: “As for man, his days are like grass; as a flower of the field, so he flourishes. For the wind passes over it and it is gone, and its place remembers it no more. But the mercy of the Lord is from everlasting to everlasting on those that fear Him.”

 

Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed.  This material is intended for informational purposes only and should not be construed or acted upon as individualized tax, legal or investment advice.  FSC Securities Corporation does not offer tax or legal advice.  The views expressed are not necessarily the opinion of FSC Securities Corporation. Financial Solutions Group is a marketing name.  Financial Solutions Group is located at 128 Versailles Blvd, Alexandria, LA  71301.  We can be reached at (318)448-3201. Securities, insurance and advisory services offered through FSC Securities Corporation, member FINRA/SIPC.