Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

CHARITABLE PLANNING WITH YOUR RETIREMENT ACCOUNT



 
 
For the past several years, Congress has employed a last minute temporary rule that allowed IRA owners to exclude their required minimum distributions (RMDs), from their adjusted gross income, by making a direct contribution of the funds to a qualified charitable organization. However, this last minute action made planning difficult for taxpayers. Finally, in December 2015, the Qualified Charitable Deduction (“QCD”) provision became a permanent part of the U.S. Tax Code.  This allows taxpayers to comfortably utilize the provision and establish long-term planning strategies around it moving forward.
 

Eligibility and Advantages:

Any IRA owner or beneficiary who is at least 70.5 years old, no exceptions, can use the QCD rule to donate their required minimum distribution or up to $100,000 per year to charity and exempt the funds from taxation. All contributions and earnings inside the IRA are QCD eligible but are classified as a nondeductible contribution. Taxpayers may not utilize a joint gifting strategy for the purpose of QCDs. 

The biggest benefit of utilizing the QCD provision is the ability for a taxpayer to lower their adjusted gross income, since the gifted funds do not count as taxable income to them. This can allow a taxpayer to stay in a lower income tax bracket, reduce or eliminate the taxation of Social Security or other income and remain eligible for deductions and credits that might be lost if the taxpayer had to declare the RMD amount as income. Another advantage is the taxpayer will not have to itemize deductions in order to qualify for this deduction (since the exclusion applies to adjusted gross income and not taxable income).

Rules

In order for the donation to qualify under the QCD rules it must be made directly to the charity. The IRA owner or beneficiary can personally receive the check and deliver it to the charity, but they cannot deposit the funds and then make out a check to the charity. The recipient charity must also be a qualified 501(c)3 organization and a charitable gift annuity will not qualify. The charitable donation amount must be substantiated by the charity with a written receipt.