It’s the time of year for giving and with our end-of-year campaign, Caring Hearts, we have the perfect opportunity for you to contribute to a cause that supports our seniors. With your contributions, we’ll raise funds to help Sagepoint Senior Living Services grow awareness of dementia and the effects it has on the person, the family and the community as a whole. To achieve this goals, we will expand community outreach efforts through caregiver support and training programs for those who care for loved ones with dementia and other long-term cognitive illnesses.
Whether you have a loved one who lives with dementia or you know someone whose life has been touched by this illness, there are many reasons to support this worthy cause. But, did you know that there are tax incentives that make charitable giving easier than ever?
With tax-free charitable giving from an IRA, seniors age 70½ or older can make tax-free charitable donations from IRAs that count toward satisfying required minimum distribution and reduce taxable income. Read more about Qualified Charitable Distribution below as you consider your end-of-year donations.
What is a Qualified Charitable Distribution (QCD)?
A QCD is a tax-free charitable distribution of funds directly from the IRA trustee (custodian) of an eligible IRA account payable to a qualified charitable organization that can receive a tax-deductible contribution. A tax-free QCD is defined in IRS Publication 17 – Your Federal Income Tax for Individuals on page 126.
Normal distribution from an IRA of deductible contributions and earning is included in income and taxed as ordinary income. The tax-free QCD removes the distribution from taxable income. QCDs are recorded on Form 1040, U.S. Individual Tax Return 2018 – the sum total QCD distribution is included on line 4 a – IRA distribution, and the abbreviation ‘QCD’ is written on line 4 b – taxable amount.
Who is Eligible to Make a tax-free QCD?
IRA account owners and beneficiaries age 70 ½ or older on the date the tax-free QCD is made to one or more qualified charitable organizations.
Taxpayers who now claim the standard deduction can still make tax-free QCDs.
What type of IRA accounts are eligible for a QCD?
Traditional IRA, Rollover IRA, Inherited IRA accounts and non-active SEP and Simple IRA accounts are eligible for a tax free QCD. Active SEP or Simple IRA account currently receiving employee or employer contributions is not eligible.
Roth IRA accounts are eligible but a tax-free QCD will not lower income tax because distributions from Roth IRAs are already tax-free and not included in income.
What type of retirement savings accounts are ineligible for a QCD?
Employer-sponsored retirement plans, such as 401(k)s, 403(b)s and 457(b)s are not eligible for tax-free QCD. A normal or tax-free QCD distribution to satisfy the IRA RMD requirement in a given tax year cannot count toward satisfying the RMD requirement for employer-sponsored requirement plans.
However, an employer-sponsored plan account owner may consider a direct transfer rollover to an IRA Rollover account that would then be eligible for tax-free QCDs. RMD calculations for tax-deferred IRAs and employer-sponsored retirement plans for the current tax year will be based upon the fair market value of the account at the close of business on December 31 of the prior year, factored by your age and life expectancy. Therefore, before implementing a rollover strategy the time and suitability should be taken into consideration.
What is the tax-free QCD distribution limit?
Seniors age 70 ½ or older may make tax-free charitable donations and exclude up to $100,000 from gross income per tax year by making tax-free QCD’s directly from an IRA. There is no carry-over from year to year. Your spouse may also make a tax-free charitable donation and exclude up to $100,000 from gross income per tax year for a combined total of $200,000.
Whether you donate to our end-of-year Caring Hearts campaign or another worthwhile cause, tax-free QCDs may be a great way to fulfill your philanthropic goals and make a lasting charitable impact in your community. Always consult your professional tax accountant, estate planning attorney and/or investment advisor before implementing any strategy.