If you are charitably inclined and you’re looking for a way to donate this year, you may want to consider a qualified charitable distribution. FineMark Trust Administrator, Grace Gutierrez explains how it’s a way to give and get a tax benefit in return.
What is a qualified charitable distribution?
A qualified charitable distribution (QCD) is a transfer of funds from your IRA made directly to a qualified charity. IRA account holders who were at least age 701/2 on the date of the transfer to the charity qualify for this planning opportunity.
Can a qualified charitable distribution satisfy my required minimum distribution from an IRA?
Your QCD can satisfy all or part of the amount of your required minimum distribution from your IRA. For example, if your 2021 required minimum distribution is $10,000, and you made a $7,000 QCD in 2021, you would have to withdraw another $3,000 from your IRA to satisfy your 2021 required minimum distribution.
What are the qualifying requirements for QCD’s?
- You must be 701/2 or older as of the date of your transfer.
- The maximum annual amount that can qualify for a QCD is $100,000 however if married, each spouse can donate $100,000 from his or her IRA.
- For a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
- The QCD must be from a traditional IRA, inherited IRA, inactive SEP IRA or inactive Simple IRA.
- The charity selected must be qualified.
What charities qualify for QCD’s?
The charity must be approved by the IRS. Qualified charities include 501(c)(3) organizations and houses of worship. There are charities that do not quality for QCD. For example, donor-advised funds and private foundations are not qualified charities. The IRS offers a searchable database of qualified charities on its website irs.gov.
How do I report a QCD on my income tax return?
A QCD is reported as a normal distribution on IRS Form 1099-R for any non-Inherited IRAs. To report a QCD on your Form 1040 tax return, you generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a QCD. Enter QCD next to this line. See the Form 1040 instructions for additional information.
You may also need to file Form 8606 but should check with your tax advisor or call your FineMark advisor and we will assist you.
Interested in trust related topics? Review this article on What Is An IRA?