IRA Qualified Charitable Distributions by Hills Bank Trust and Wealth Management Group | Part 2 in a 4 Part Series
Recent tax reform will likely lead many taxpayers to utilize the standard deduction on their income tax returns. Qualified Charitable Distributions are an available tool for making gifts to charity and still obtaining a tax benefit. What is a QCD? A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an Individual Retirement Account (IRA), to a qualified charity. QCDs may be counted toward satisfying a Required Minimum Distribution (RMD).
1040
Individual Retirement Account (IRA)
Charity
RMD Bypasses Individual Federal 1040
$1,000
Potential benefits? • Elimination of federal income taxes on RMD: QCDs are excluded from gross income. • No AGI limits: Itemized charitable cash gifts are limited to 60% of AGI, but there is no such limit when an RMD is used. • Lower AGI: By making a QCD, a taxpayer lowers their adjusted gross income (AGI). Benefits of lowering one’s AGI include: • Reducing taxation on the IRA owner’s Social Security • Potentially mitigating the Medicare high-income surcharge • Leveraging deduction for medical expenses - medical expense must exceed 7.5% of AGI for itemized deduction • No need to itemize: Receive the charitable contribution tax benefit, even if the IRA owner does not itemize. • Fulfill philanthropic desires: QCDs are a convenient way to receive a tax benefit for charitable gifts. • IRA Owner must be 70½ or older • A QCD must come from a Traditional, Rollover or Inherited IRA • The maximum annual amount which can be given is $100,000 ($100,000 per spouse permitted) • The distribution must be transferred directly from the IRA custodian to the charity How to make a QCD?
• Donation must be made by December 31st • Charity must be a 501(c)(3) organization
If you’d like to discuss how to make a qualified charitable distribution from your IRA, contact a Hills Bank Trust and Wealth Management Officer by calling 1-800-899-8858, or visit us at https://www.HillsBank.com/WealthManagement. Investment products are not a deposit, not FDIC insured, not insured by any federal governmental agency, carry no bank guarantee, and may go down in value. Neither Hills Bank and Trust Company or any of its employees are authorized to give legal or tax advice. Individuals are encouraged to seek the guidance of their own personal legal or tax counsel. Source: IRC § 408(8)(2017). IRC § 213 (2017). IRC § 170 (2017).
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