By Joe O’Malley, CPA, MST

Senior donors may not be aware that they have a potential tax benefit available to them. If a nonprofit is a 501(c)(3) organization and is eligible to be the recipient of a qualified charitable distribution (QCD), senior donors can make their donation directly from their individual retirement account (IRA) to that nonprofit organization.

Overview

Nonprofits benefit helping senior donors understand how to make a QCD and its potential tax advantages. A QCD is especially beneficial for traditional IRA owners who are at least 72 years old and must take a required minimum distribution (RMD) each year.

Many seniors may not want or need the RMD money in a given year, but they must take it and pay taxes on it. In fact, failure to take a distribution subjects the IRA owner to a 50% excise tax on the RMD amount. Making a QCD with all or part of their RMD can help seniors maintain their adjusted gross income (AGI) and taxable income within a desired range in that year.

Donors Must Heed IRS Rules on QCDs

IRS Publication 590-B (2019), Distributions from Individual Retirement Arrangements, provides guidelines for IRA owners on QCDs. In summary:

  • An IRA owner can designate up to $100,000 of an RMD as a QCD. For married couples, each spouse individually can designate up to $100,000.
  • The donor must request that the IRA custodian transfer funds directly to an eligible nonprofit organization. If the donor takes a distribution and then tries to write a check for the donation, it will not qualify as a QCD.
  • Contributions made to support organizations, donor-advised funds, and those organizations not found in the IRS searchable database will not qualify as QCDs.
  • The QCD must be received by the nonprofit organization by December 31 for the amount to be applied to the IRA owner’s tax return for that year.
  • The QCD cannot be listed as a deduction if the donor chooses to itemize. The amount of the QCD effectively reduces the donor’s AGI on Form 1040.
  • The rules apply to traditional IRAs and not to Roth IRAs. Taxes are taken out when a Roth IRA is funded, so no tax benefit would be allowed.

Do you have questions about donating to nonprofits using QCDs? Feel free to contact me at  jomalley@all-cpas.com or by phone at 617-738-5200.

Joe O’Malley, CPA, MST

Joe O’Malley, CPA, MST has over 13 years of experience servicing the accounting and tax needs of individuals, trusts, estates, and privately held businesses. He works with clients across a broad range of industries, including law, finance, real estate, technology and professional services.

Joe began his career at ALL and later worked for international accounting firms in their respective private client service tax practices. Joe is a sought after professional for the close personal attention he gives each client and the results focused methods he brings to each engagement.

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