Back in 2006, Congress passed legislation enabling clients to make charitable donations directly from their IRAs, but there was an unfortunate twist: the law's qualified charitable distribution rules would sunset every few years.
That allowed many wealthy Americans to make donations from their IRAs. But the sun-setting also made long-term planning difficult, since no one could be sure that this provision would be around 10 or 20 years into the future.
That's all changed. The budget deal that Congress reached back in December made the QCD provision permanent, enabling charitably inclined clients to make sizable, long-term arrangements.
So the question arises: Who is best positioned to take advantage of the QCD? Some clients could simply include their IRA distribution in their gross income, then donate the distribution to a charity and take the tax deduction. But without the QCD, that strategy only works for taxpayers who whose charitable contributions are less than 50 percent of their gross income.
Who else can benefit from this? If your clients find themselves in one of following 5 situations, they may wish to know more about the QCD:
(1) People needing to reduce their adjusted gross income. The provision allows IRA holders aged 70½ or older to make direct donations of up to $100,000 annually without first taking taxable withdrawals from their accounts.
That means households can make larger contributions before hitting the maximum tax deduction. Perhaps the most significant benefit: the amount of the donation is not included in AGI.
(2) Clients who don't need to take their IRA distributions for living expenses. Anything the client donates through a QCD counts as part of the annual required minimum distributions that must be taken from IRAs starting at age 70½. So IRA owners who do not need the distributions for income could make use of the tax benefit.
(3) Only individuals who've attained age 70½ may make QCDs. If the client reaches that age during the course of the year, they must wait until after their half-birthday to make the QCD transfer.
Clients who want to donate more than the prescribed limits to charity. The $100,000 maximum QCD does not apply to the charitable deduction limit. This may be able to help some clients make charitable contributions in excess of 50 percent of their adjusted gross income.
