By Roy Larsen, CFP®, AAMS®
Often, we have clients who are past age 70 1/2, who have started to take required minimum distributions and they simply don't want or need them. They don't want to pay taxes on monies that will simply go into their bank and in all likelihood, just sit there! Enter the qualified charitable distribution!
The qualified charitable distribution (QCD) is a way to move money out of their IRA's to a charity that qualifies, completely free of income taxes. To be eligible, you have to be age 70 1/2. Unlike required minimum distributions where your first distribution takes place in the year you turn 70 1/2, here you must actually be 70 1/2 to take advantage of it.
Most IRA accounts are eligible including Roth's. The only IRA's not eligible are Simple and SEP IRA's where contributions are still being made, otherwise they can be used as well. The limit for a QCD is capped at $100,000 per person, per year.
One of the nice features is that the distribution can be used to satisfy your required minimum distribution for the year. As an example, Mary has a required minimum distribution of $10,000 for 2016. She also wants to give $10,000 to her church. By transferring the funds from her IRA directly to her church, Mary satisfied the RMD and there are no taxes due!
Another critical piece of the maneuver is the custodian must make the check payable to the qualifying charity. If you take the funds in your name and send the check to the charity, the QCD provision will be lost and taxes will be due on the distribution.
Also, make sure the charity you donate to can accept charitable contributions under IRS rules. This is also key. Keep good records on the transfer as you will have to substantiate the QCD, so something from the charity showing the donation would be helpful.
Lastly, the custodian will not report that you performed a QCD so it will be up to you to let the IRS know about the charitable distribution on your tax return. The total distribution amount from the IRA will go on line 15A, if there were any additional amounts taken that were not a charitable distribution(taxable), they would be entered on 15b. You would then simply write "QCD" next to line 15b.
Roy Larsen, CFP®, AAMS® is a Fee Only Certified Financial Planner practitioner and acknowledged fiduciary. He works with clients in the Gainesville, GA. area outside of Atlanta and throughout the United States. Larsen Wealth Management specialized in the distribution phase of retirement or your version of chapter two. Roy has been quoted in the Wall Street Journal as well as the New York Times and has won the 5-Star Professional award for 6 consecutive years as one of the top Wealth Managers in Atlanta. Roy can be reached at 678-696-8755 or roylarsen @investinretirement.net.
The opinions voiced in this material are for general information purposed only and are not intended to provide specific advice or recommendations for any individuals(s). To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Roy Larsen is a Certified Financial Planner™ practitioner and Fee Only Wealth Manager who resides outside of Atlanta, Georgia.
Roy's Financial Blog contains articles on the multiple and complex issues of living successfully in Retirement.