As an alternate method for donating to a charity, certain taxpayers may transfer funds from their IRA to an eligible charitable organization.
Taxpayers who are age 70½ and older can choose to make a tax-free qualified charitable distribution (QCD) from their Traditional IRA or Roth IRA.
This rule cannot be used for distributions from SEP, SIMPLE, or qualified retirement plans such as 401Ks. The donation must be made as a trustee distribution directly to the qualified charity of the your choice. Private foundations and donor-advised funds are not eligible charities.
You will not receive a charitable donation deduction but will be able to exclude the amount transferred to the charity from income. The taxpayer is limited to a maximum qualified charitable donation amount of $100,000 per year.
In order for the distribution to be a qualified tax-free distribution, the amount distributed must be deductible under §170. Therefore, if the donor receives any benefit from the charity that receives the distribution, the benefit must reduce the charitable donation amount by the FMV of the benefit.
If the donor owns more than one IRA where they made non-deductible contributions, the taxable amount is treated as distributed first for qualified charitable purposes. The taxpayer must aggregate all of their IRAs for this purpose. All of the taxpayer’s Roth IRAs are also separately aggregated for this purpose.
Because a Roth IRA can be received tax-free by the owner’s heirs, this donation option does not appear to be as appealing to the Roth IRA owner as to a Traditional IRA owner.
It is simple to report your qualified charitable donation. You report the qualified tax-free distribution on Form 1040, Line 15a, then enter $0 on Line 15b. You must write the letters “QCD” on the dotted line next to Line 15b to designate the distribution as a charitable donation.