Congress gave charities a shot in the arm in the recent tax act by extending the IRA Charitable Rollover through 2011. If you are 70-1/2 or older and have begun taking your Required Minimum Distributions (RMDs) from your IRA, you can direct the trustee of your IRA to make distributions to charity instead of to you. The advantage of doing this is not having to recognize your 2010 and 2011 RMDs as taxable income. You don't get charitable deductions for these distributions, but you end up money ahead if you use your IRA to make charitable gifts that you would be making out of after-tax dollars anyway. Here are some of the particulars about having your IRA trustee make a Qualified Charitable Distribution (QCD):
- QCDs can only be made from IRAs. If you have another kind of qualified plan, you can roll money into an IRA and have the QCD made from the IRA.
- You have to be 70-1/2 when the QCD is made. Most of us gave up keeping track of 1/2 birthdays after the age of 2-1/2 or so, but the math isn't that hard. Why Congress is making us revert to keeping track of our age like toddlers is unclear.
- The recipient of your gift has to be a public charity. In other words, it has to be an organization recognized as tax-exempt by the IRS under section 501(c)(3) of the Internal Revenue Code.
- The most you can give as a QCD in any one year is $100,000. There is no minimum, but the trustee of your IRA is not going to be happy about making a lot of little distributions.
- Since QCDs are not counted as income, they do not affect the amount of your adjusted taxable income that you can give to charity. Thus, you can make a $100,000 QCD and still give up to 50% of your adjusted taxable income (not counting the QCD) to charity.
- Your QCDs must go straight from the trustee of your IRA to your charitable beneficiaries. If the money goes through your hands, you don’t get QCD treatment.
- You can make your 2010 QCDs in January 2011, if you can’t make them by the end of 2010.
If you are charitably inclined, are over 70-1/2, and have money in an IRA, you should consider making QCDs.