Just Like


Uncle Sam Used to Make


THE PERFECT QUALIFIED CHARITABLE DISTRIBUTIONS


With the right recipe, distributions from your Traditional IRA can be tax free.


Curtis D.


Stoltzfus, CFP®, VP Financial Strategies


Te Protecting Americans from Tax Hikes Act of 2015 (PATH Act) permanently added the Qualified Charitable Distribution (QCD) to the law starting in 2016. With a QCD, up to $100,000 annually can be contributed directly to a qualifying charity from an IRA by an individual who is 70.5 or older without having to report the distribution as taxable income.


Normally, distributions from Traditional IRAs are 100% taxable as ordinary income. Te QCD can also satisfy the Required Minimum Distribution that must be disbursed annually, once a Traditional IRA owner reaches age 70.5. QCDs are a per-individual benefit, so spouses filing jointly can exclude up to $200,000 from income each year in favor of blessing a charity.


Because QCDs are not reported as income,


no charitable deduction on schedule A is claimed. Although it seems like the results would be the same if the IRA owner included the IRA distribution as income, contributed the distribution to charity, and then deducted the charitable contribution on his or her tax return, using the QCD is more beneficial in many scenarios. For example:


1. Individuals who claim the standard deduction can benefit from the full charitable contribution, even though they do not itemize.


2. Te full amount of a QCD can be excluded from income, even when the charitable contribution exceeds the 50 percent adjusted gross income (AGI) limit on charitable contributions.


3. Distributions directly to charities keeps AGI lower, which is beneficial when calculating other items, such as taxability of social security, medical expense floors, miscellaneous deduction floors, and the investment surtax.


With the


right recipe, distributions from your Traditional


IRA can be tax free.


We must follow the IRS’s recipe to be sure IRA distributions qualify as a QDC. Te distribution must be made to an organization that qualifies for a charitable deduction. Tere are a few charitable vehicles that cannot accept QCDs, such as private foundations, donor advised funds, and charitable trusts. QCDs may be made by making a direct transfer from the IRA to the qualifying charity, or the IRA may mail a check made payable to the


qualifying charity directly to the IRA owner, who then delivers the check to the charity. Be careful when using the latter approach. Te check must be made payable to the charity—and not the IRA owner—to qualify for the QCD.


Because IRA custodians do not differentiate between distributions sent to charity versus distributions sent to the IRA owner, the final ingredient to the recipe is to let your tax preparer know how much of your IRA distributions were sent to charity. Te tax preparer will then exclude the distributions to charity, leaving only the sweet taste of lower taxes and blessing charity.


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