Article written by:
Mindy Jones, CPA
Are you over 70 1/2 and do you have an IRA? A “qualifying charitable distribution” could be a great tax planning opportunity.
The requirements for a qualifying charitable distribution are fairly straightforward. As mentioned above, the distribution has to be made from a traditional or Roth IRA and by an IRA owner that is over the age of 70 ½. Additionally, the distribution has to be made directly by the trustee of the IRA to a qualified charitable organization and is limited to $100,000 per year.
What are the benefits of a making qualified charitable contribution? First, the distribution is excluded from income, which in effect lowers your AGI. If you were already planning on making a charitable contribution directly to a charity this will be of benefit to you if your charitable contribution deduction is potentinally limited by the 50% of AGI limitation, or if you do not itemize. Additionally, a lower AGI may help you to deduct certain itemized deductions that are determined by the AGI floor such as medical expenses, which are only deductible in excess of 7.5% of AGI for taxpayers 65 and older.
Another benefit of a qualifying charitable distribution is that such a distribution meets minimum distributions (RMD) requirements. Thus, if you are subject to RMD and already planning on making a charitable contribution, a qualifying charitable distribution has all of the benefits mentioned above and will help you meet that RMD up to the amount transferred.