In December 2015, the “Protecting Americans from Tax Hikes (PATH) Act of 2015” was signed into legislation, making qualified charitable distributions (QCD) or charitable IRA rollovers permanently accessible to certain donors.
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A QCD or charitable IRA rollover allows philanthropists to donate individual retirement account (IRA) assets directly to charity.
Qualifications for a charitable IRA rollover
- The donor must be 70 ½ years old or older
- The contribution must be transferred from the giver's traditional or Roth IRA account directly to a charity
- The donor's IRA trustee cannot transfer their IRA assets to a donor-advised fund or private foundation.
- The donation must be made directly to an eligible public charity
- The application must be completed and filed within the applicable tax year
Qualified donations are capped at $100,000 each year. Donors can split the amount between several charities if they so wish. Donors can give more than $100,000 but the IRS limits the exclusion from gross income to the cap amount.
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Charitable IRA rollovers are not tax-deductible, but since they are not included in the adjusted gross taxable income of donors, they cannot prompt high Medicare premium or higher taxes. In addition, charitable IRA rollovers count towards the annual minimum required distributions (MRDs) donors need to take from their IRAs annually.
Charitable individuals who wish to take advantage of the benefits of an IRA charitable rollover should seek advice from a knowledgeable tax professional.
Anthony Laxen is a Minnesota-based tax manager and certified public accountant specializing in business tax compliance. For related articles and news, please subscribe to this blog.
