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December 11, 2019
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If you are charitably inclined and have an IRA, you might want to consider doing a Qualified Charitable Distribution (QCD) for 2020. In addition to the gift you are making to the charity, there are considerable tax advantages.

Here are ten QCD rules you need to know.

1. Must be Age 70 ½

IRA owners who are age 70½ and over are eligible to do a QCD. This is more complicated than it might sound. A QCD is only allowed if the distribution is made on or after the date you actually attain age 70 ½. It is not sufficient that you will turn 70 ½ later in the year.  

2. Beneficiaries Can Do QCDs

QCDs are not limited to IRA owners. An IRA beneficiary may also do a QCD. All the same rules apply, including the requirement that the beneficiary must be age 70 ½ or older at the time the QCD is done.

3. Eligible Retirement Accounts

You may take QCDs from your taxable IRAs funds. QCDs are also permitted from SEP and SIMPLE IRAs that are not ongoing. An ongoing SEP and SIMPLE plan is defined as one where an employer contribution is made for the plan year ending with or within the IRA owner’s tax year in which the charitable contributions would be made. QCDs are not available from an employer plan.

4. $100,000 Annual Limit

QCDs are capped at $100,000 per person, per year. For a married couple where each spouse has their own IRA, each spouse can contribute up to $100,000 from their own account.

5. RMD Can Be Satisfied

A QCD can satisfy your required minimum distribution (RMD) for the year. A QCD can exceed the RMD amount for the year, and still be tax-free, as long as it does not exceed the $100,000 annual limit.

6. Only Taxable Amounts

QCDs apply only to taxable amounts. No basis (nondeductible IRA contributions or after-tax rollover funds) can be transferred to charity as a QCD. QCDs are an exception to the pro-rata rule which usually applies to IRA distributions.

7. Direct Transfer is a Must

If you want to do a QCD, you must make a direct IRA transfer from the IRA to the charity. If a check that is payable to a charity is sent to you for delivery to the charity, it will qualify as a direct payment.

8. Charitable Contribution Requirements

A QCD can only be made to a charity which is eligible to receive tax-deductible charitable contributions under IRS rules. The QCD rules are not available for gifts made to grant-making foundations, donor advised funds or charitable gift annuities. The contribution to the charity would have had to be entirely deductible if it were not made from an IRA. A taxpayer does not have to itemize deductions, but the gift to the charity still has to meet all of the deductibility rules.

9. Charitable Substantiation Requirements Apply

You should have documentation to substantiate the donation (something in writing from the charity showing the date and amount of the contribution).

10. Reporting on the Tax Return

The IRA custodian will not be separately reporting the QCD. There is no code or box on the 1099-R to identify the QCD. It will be up to you to let the IRS know about the contribution by including certain information on your tax return.

Copyright © [2019], Ed Slott and Company, LLC Reprinted from The Slott Report, [November 19, 2019], with permission. [] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC.  Advisory Services offered through J.W. Cole Advisors (JWCA).Franklin Planning and JWC/JWCA are unaffiliated entities. Securities are not FDIC insured or guaranteed and may lose value.  Investments are not guaranteed and you can lose money.  This presentation is for educational purposes only and is not an offer to buy or sell an investment. Neither Franklin Planning nor JWC/JWCA is tax or legal advisors and this information should not be considered tax or legal advice.  Consult with a tax and/or legal advisor for such matters.