The Qualified Charitable Distribution

The Qualified Charitable Distribution (QCD) rules can help you leverage your donation—and minimize your taxation. This short article will explain how to get a tax break, without even itemizing, by directing your custodian to donate your Required Minimum Distribution (RMD) directly to the charity of your choice.

The qualified charitable distribution rules have, in previous years, not been set in stone according to the IRS. Starting in 2018, however, the IRS has declared that charitable donations made from one of your tax-deferred accounts will be exempt from taxation up to $100,000 as long as the distribution comes from a qualified account and is donated to a charity that meets the IRS stipulations. The IRS has enacted this as a permanent rule moving forward as of next year.

Under the 2018 tax law, now fully in effect, a couple over the age of 65 will receive a standard deduction of $26,500 ($24,000 plus $1,250 per person over age 65 per person additional deduction). So, it is possible your charitable contributions, along with your other deductions, may not be enough to exceed the standard deduction under the new tax law.

However, reducing your income, by taking advantage of the Qualified Charitable Distribution could accomplish the same objective. This lowers your adjusted gross income and taxable income, resulting in a lower overall tax liability.

This is good news for IRA owners that would like to be generous with their funds, while at the same time lowering their overall estate and avoiding taxation on their distribution.

What Are the Qualified Charitable Distribution Rules for 2018?

The new qualified charitable distribution (QCD) rules for 2018 can and should play an influential role in how you withdraw funds from your retirement accounts. As an example, when you reach the age of 70 ½, you will need to withdraw a required minimum distribution from all of your qualified accounts (the specific amount will be calculated using your age and total account value).

The IRS determines the amount of money that you are required to withdrawal from your qualified accounts, therefore guaranteeing that you will be paying taxes on that previously untaxed money. However, if you are able to leverage the qualified charitable distribution rules, you can avoid paying taxes on IRA distributions of up to $100,000 a year.

Refer to IRS Publication 590-B for further information or consult your Tax Professional.