QUAlIFIEd ChARITABlE dISTRIBUTIonS And ThE SECURE ACT
Tax Law Section
Chair: Christopher Dingman – Barnett, Bolt, Kirkwood, Long & Koche, P.A.
despite these changes, the
QCd remains a valuable tool
for individuals to lessen the
T
he rules governing the
Qualified Charitable
Distribution (“QCD”)
seem to change every
few years, and last year was no
exception. Individuals who are
required to take Required Minimum
Distributions (“RMDs”) from their
IRA, but do not require the income,
often look for strategies that will
help neutralize the tax effects of
that distribution. A QCD is a tool
that could be used to lessen or, in
some cases, eliminate the effects of
RMD income that would otherwise
be subject to federal income tax.
The QCD enables IRA owners
who are 70½ and older to transfer
up to $100,000 per year of IRA
assets to public charities without
being subject to federal income
tax on the distribution. The
amount of the distribution also
counts towards the individual’s
RMD for that tax year. To qualify
as a QCD, an IRA distribution
must meet the following criteria:
• The taxpayer must be at
least 70½ years of age on
the date of the distribution.
• The QCD must be made
directly to a 501(c)(3)
organization that is eligible
to receive tax-deductible
contributions. (Note that
donor-advised funds, some
private foundations, and
many supporting organizations
do not qualify.)
60
tax consequences of RMds
while supporting the mission
of their favorite charities.
• The distribution must have
otherwise been eligible for
a full charitable deduction
as defined by IRC § 170.
This is to ensure the taxpayer
does not receive any benefits
as a result of the QCD
and eliminates gifts to
“split interest” charitable
vehicles, such as a Charitable
Lead Trust.
• QCDs can only be made from
individual IRAs or Roth IRAs
(though making a QCD from
a Roth IRA is likely moot).
SEP IRAs and employer
retirement plans are ineligible.
The “Setting Every Community
Up for Retirement Enhancement
(SECURE) Act of 2019,” which
went into effect on December 31,
2019, 1 modified some of the rules
governing RMDs and QCDs.
The SECURE Act raises the
age individuals must start taking
minimum distributions from their
IRAs from 70½ to 72. This rule
is applicable to individuals who
reach age 70½ after December
31, 2019. The SECURE Act
also eliminated the age limit
for making tax-deductible
contributions to IRAs — a nod
to extended life expectancies
and later retirement age for
working individuals.
Interestingly, the SECURE Act
didn’t change the age taxpayers are
eligible to make a QCD. Taxpayers
can still make up to $100,000 in
QCDs per year beginning at age
70½. While these QCDs will not
count against future RMDs, they
will reduce the total amount in the
IRA (tax-free), thereby potentially
reducing the amount of future
RMDs. It is important to note,
however, that the statute incorporates
an “anti-abuse” rule for individuals
who take a deduction on
contributions made to their IRAs
and “double-dip” by also attempting
to make a QCD (attempting to
reclassify what was intended to
be a charitable contribution as
an IRA contribution).
Despite these changes, the
QCD remains a valuable tool
for individuals to lessen the tax
consequences of RMDs while
supporting the mission of their
favorite charities. n
Public Law
No. 116-94
(Dec. 20, 2019).
1
Author:
Nicolette F. Rea –
Community
Foundation of
Tampa Bay
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HCBA LAWYER