R is for Required Minimum Distributions (RMD) as a Charitable Distributions

In the past, Congress would decide each year whether Required Minimum Distributions (RMD) could or could not be used as a charitable distribution.  However, through the Protecting American from Tax Hikes (PATH) Act of 2015, Qualified Charitable Distribution (QCD) rules have been made permanent. Now you may use a charitable giving strategy as a tax planning opportunity as long as all specific requirements are met as stated in IRS Section 408(d)(8). Below is a breakdown:

  • IRA owner must be age 701/2 or older at the date of distributions to make the tax-free transfer to charity.
  • Distributions must be made from an individual IRA, they cannot come from a SEP or SIMPLE IRA if these accounts are still receiving funds from an employer, and no other type of company retirement plan (401k) is eligible.
  • You no longer have to wait until the year end to give your RMD to a charity you can now make the distribution anytime during the year.
  • Distribution amount of a QCD from any individual IRA is limited to $100,000 per year. It counts as your required minimum distribution and is not included in your adjusted gross income.
  • Money transfer must be payable directly to the charitable entity and not to the IRA owner to be a tax-free transfer. Check with your IRA administrator to ensure this procedure is followed correctly.
  • Only certain types of (public) charities are eligible to qualify for QCD distribution. It must go directly to a public charity as defined in IRC Section 170(b) (1) (A), and not a private foundation or a donor-advised fund.

Please check with your trusted financial and tax advisor to discuss whether a QCD is right for you and make sure all the specific requirements are met before making your distribution. Keep in mind that once an RMD has been distributed, you can’t turn it into a QCD later.

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About Ann Zuraw

Ann Zuraw, the voice behind "Chicks, Chat and Change", is a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), and Certified Divorce Financial Analyst (CDFA™).If you have comments on this post contact Ann Zuraw

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