A qualified charitable distribution is a direct transfer of funds from an IRA to a qualified charity. Generally, a distribution from an IRA is taxable; however, the donative nature of the transaction allows the amount to be excluded from the account holder’s income. In addition, a qualified charitable distribution may be counted toward satisfying the account holder’s required minimum distribution for the year.
While many IRAs are eligible for qualified charitable distributions, the requirements are as follows: the account holder must be 70 ½ years-old; the distribution amount is limited to the amount that would otherwise be taxed as ordinary income, with a ceiling of $100,000; the funds must be distributed directly to the charity, without the account holder acting as an intermediary; and the distribution must be completed by the account holder’s required minimum distribution deadline.
A qualifying charity must be 501(c)(3) organization, meaning it is eligible to receive tax-deductible contributions. Certain charities specifically do not qualify for qualified charitable distributions, such as: private foundations; supporting organizations (charities carrying out an exempt purpose by way of supporting other exempt organizations); and donor-advised funds.
In conclusion, qualified charitable distributions are a useful way to reduce tax liability and satisfy an account holder’s yearly required minimum distribution. Each situation is unique, but hopefully this article provided helpful information and prompted consideration regarding the utilization of tax planning (such as qualified charitable distributions) to minimize or avoid tax consequences. At Chandler and Brown, Ltd. our knowledgeable estate planning attorneys would be happy to meet and determine the best plan for your individual situation in order to prepare you and your family for the future.