Personal Finance

Money Matters: Making charitable distribution directly from IRA has benefits

Q. Do you know if the contribution from IRAs directly to charity is going to be available this year? I’d already taken mine last year when Congress waited until December to reinstate it! It makes me nervous to wait until the end of the year just to see if its reinstated. I worry that there might be complications with the contribution and I’ll miss the 12-31-15 deadline. I don’t need a 50 percent penalty on my RMD!

A. The opportunity to make a charitable deduction from an IRA and have it count toward your required minimum distribution (RMD) was extended late last year but expired for 2015. The House has passed the America Gives More Act of 2015 which permanently restores what is called a qualified charitable distribution (QCD). The Senate has not passed this so we are still in limbo as to QCDs for 2015.

What you could do is make a distribution directly from your IRA to a qualified charity. This way if the QCD rules are reinstated, you’re all set. If they aren’t reinstated, you just claim the amount contributed as income and then report the donation as an itemized deduction. You’ll have a taxable distribution and a tax deductible contribution. As explained below this may not be as advantageous as a QCD but if you were going to donate to charity anyway it doesn’t matter.

The following will be of interest for those not familiar with the QCD rules:

The QCD must be a transfer directly from an IRA to a qualified charity. The QCD will be excluded from your taxable income. If you take an IRA distribution and subsequently write a check to the charity, the distribution will be included in your taxable income even if the amounts distributed and donated are the same. With a QCD you won’t get a tax deduction on the amount donated but you won’t claim that amount as taxable income. Only IRA owners who have attained age 70 ½ are permitted to make QCDs and the amount is limited to a maximum of 100,000.

On reason QCDs are better than normal RMDs is that normal RMDs increase adjusted gross income (AGI) which may cause the loss of some tax benefits such as: reduction of itemized deductions, reduction of passive loss deductions, increased Medicare premiums and causing a greater portion of Security benefits to be taxed. By making a QCD, AGI is not be increased and some of these tax benefits may not be lost.

A wise man told me another reason he prefers the QCD method of making a donation. For some reason, he gives more when it goes directly from his IRA. That may be the inspiration behind the name the House gave the “America Gives More Act of 2015.”