By Sarah Brenner, JD
In the wake of tax reform, more IRA owners are making use of the Qualified Charitable Distribution (QCD) strategy. This is a side effect of fewer people choosing to itemize and instead going with the larger standard deduction. If you are not itemizing, you cannot claim a tax deduction for your charitable contribution. To get a tax break for money given to charity, many savvy IRA owners are increasingly turning to the QCD. With the number of QCDs rapidly increasing, so are the questions as to how this tax break works. Here are two QCD questions we are hearing a lot these days.
1. Can an IRA beneficiary do a QCD? The answer to this question is an emphatic yes. QCDs are available to IRA beneficiaries. But watch out! There are some areas of confusion. To be eligible for a QCD, the beneficiary must be age 70 ½. The age of the IRA owner does not matter.
Example: JoAnn, age 75, leaves her IRA to both her older sister, Clara, age 80, and her daughter, Brenda, age 50. Older sister Clara can do a QCD to satisfy her required minimum distribution (RMD) for the year because she is over age 70 ½. Brenda cannot because she is only age 50. The fact that she inherited the IRA from her mother who was 75 does not allow Brenda to do a QCD.
2. Is the amount of the QCD limited to the amount of the RMD for the year? No. The amount of the RMD has nothing to do with how much can be taken as a QCD. The annual QCD limit is $100,000 for everyone who is eligible. It does not matter if their RMD is smaller.
Example: Joaquin, age 78, has an RMD of $80,000 for 2019. Joaquin would like to do a $100,000 QCD to his favorite charity. He can transfer $100,000 to the charity tax-free as a QCD even though his RMD is only $80,000. The transfer will satisfy his RMD, and the amount exceeding it still counts as a QCD.