If you have charities you would like to support, pretax money saved in an IRA can be an ideal charitable donation. Rather than passing these assets to a beneficiary — who will likely pay taxes when the inherited IRA is distributed — you can give them to charity by taking a qualified charitable distribution (QCD). A QCD will count toward satisfying your required minimum distribution, and neither you nor the charity will have to pay income taxes.
Frequently asked questions:
Can I make a QCD every year?
Yes. If you qualify for a QCD, you can give up to $100,000 per year from your IRA directly to a charity. Under the new SECURE Act changes, I don’t have to take a required minimum distribution (RMD) until age 72.
Can I still make a QCD at age 70½?
Yes. While the SECURE Act changed the RMD age to 72 for people who didn’t turn 70½ before the end of 2019, it didn’t change the age for QCDs.
Can I still take a QCD for 2020 even though the CARES Act waived my 2020 RMD?
Yes. You can still take a QCD, but it will not offset any future RMD amounts.
Does making deductible IRA contributions affect my eligible QCD amount?
Your QCD must be reduced by any deductible IRA contributions made for the year you turned 70½ or later.
Is a QCD more valuable than a regular charitable deduction?
For some people, a QCD has distinct advantages over a regular charitable contribution:
- A QCD counts toward satisfying your required minimum distribution.
- You can take a QCD whether or not you itemize deductions on your tax return. If you use the standard deduction, you will generally receive no tax benefit from a regular charitable contribution. The CARES Act does provide for a universal charitable deduction of $300 for 2020 only.
- A QCD is not included in your adjusted gross income (AGI). This could benefit you because AGI (or a modification of AGI) is used to calculate certain other taxes and benefits.
- The regular charitable contribution deduction is typically limited to no more than 60% of AGI* This AGI limit does not apply to a QCD.
*The rule that limits the deductibility of certain cash contributions generally to 60% of adjusted gross income (AGI) for taxpayers who itemize is waived for certain charitable contributions made in 2020. Effectively, this means that taxpayers who itemize can deduct cash contributions to charity of up to 100% of their AGI for 2020.
Clients should take a holistic approach when considering qualified charitable distributions. Clients should discuss income tax implications and estate/planning objectives with their tax advisor for guidance on their specific situation. Be sure you understand the potential benefits and risks of an IRA rollover before implementing. As with any decision that has tax implications, you should consult with your tax adviser prior to implementing an IRA rollover. Ameriprise Financial, Inc., and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Ameriprise Financial Services, LLC. Member FINRA and SIPC. © 2017 – 2020 Ameriprise Financial, Inc. All rights reserved.
Travis.OConnor@AMPF.com Office: 610.397.0997 x 108
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I was born and raised in Abington PA, but ventured off to study and play lacrosse at the University of Pittsburgh. After school, I returned to the Greater Philadelphia area and started working in the world of personal finance. My weekends are filled with cooking/baking, as well as long hikes. When I am not rooting for Philly sports teams, I love giving back to the community.
Travis OConnor is a Financial Advisor at Kelman and Magliari Advisory Group, a private wealth advisory practice of Ameriprise Financial Services, LLC.