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Resurrecting the Qualified Charitable Distribution?

You could use your computer to make a qualified charitable distribution

Photo courtesy of Rayi Christian W on unsplash.com.

This past week the US House of Representatives passed a bill (HR 4719, known as the America Gives More Act) which would re-instate the Qualified Charitable Distribution from IRAs and make the provision permanent.  This provision expired at the end of 2013, as it has multiple times in the past, only to be re-instated temporarily time and again.

A Qualified Charitable Distribution (QCD) is when a person who is at least age 70½ years of age and subject to Required Minimum Distributions from an IRA is allowed to make a distribution from the IRA and direct the distribution to a qualified charitable organization without having to recognize the income for taxable purposes.  This has been a popular option for many taxpayers, especially since the QCD can also be recognized as the Required Minimum Distribution for the year from the IRA. 

We’ve discussed the Qualified Charitable Distribution many times in the past, primarily when it was expiring or being reinstated.  What’s different about this most recent legislation is that the provision is to be extended permanently.  The projected cost in lost revenue of the QCD portion of the pending legislation over the coming decade is nearly $8.5 billion.  Initial reports indicate that the White House is opposed to the legislation as written, in part because there is no off-setting revenue stream for the lost revenue.

The Senate is reviewing another proposal to extend this provision temporarily (once again).  So, while this looks like a promising bit of legislation, there’s no expectation that it is a done deal – we’ll keep you posted here as the story evolves.

13 Comments

  1. […] addition to those tips, I’ll offer one more: if you are interested in utilizing the Qualified Charitable Distribution option from your IRA – presently this option has not been extended for tax year 2014. It’s possible […]

  2. Morris ArmstrongNo Gravatar says:

    Two big advantages are that the QCD may allow a person to remain in a lower Medicare B bracket and may also effectively get a charitable deduction without itemizing.

  3. LisaNo Gravatar says:

    My apologies as I’m late in responding but this is very helpful and the best reason I could surmise. Thank you so much!
    Jim.

  4. Jerome FehribachNo Gravatar says:

    I’m few years away yet from RMD, but I’m interested in QCD. In previous years, QCD has not been allowed to a “donor-advised fund”, such as Vanguard Charitable (vanguardcharitable.org). What is the reason donor-advised funds have been excluded? My goal is to build up the charitable contribution for about three years in the donor-advised fund, then have a single big-bang contribution to the charity.

    1. jblankenshipNo Gravatar says:

      From my brief review of the subject, I don’t find any specific reason why donor-advised funds are excluded. It is spelled out in the original code from section 1201 of PPA ’06, but no explanation is given as to why.

      1. Jerome FehribachNo Gravatar says:

        I’m not surprised no explanation is officially given for the exclusion of donor-advised funds. But do you have a theory for why there is an exclusion?

        1. jblankenshipNo Gravatar says:

          I try not to waste time trying to figure out what’s the motive behind things like this. I really don’t know why at all.

  5. Lisa WeilNo Gravatar says:

    To follow up, I’d guess one benefit is in lowering your overall AGI so you avoid bumping into other phase-outs and threshold levels. Also, if you don’t have the cash elsewhere to donate, this makes sense. Are there other reasons?

    1. jblankenshipNo Gravatar says:

      QCD can take the place of a required distribution, again without having to recognize the income on the tax return. That’s the other major benefit that I can think of right offhand.

  6. liftupyoureyes@gmail.comNo Gravatar says:

    I am so glad to hear about the possibility of making a QCD permanent. There are some accounts that I cannot make that permanent with but I am hoping that I can adjust my IRA’s so that I can drop my income to decrease my charges below my AGI.

    Shirley

    1. jblankenshipNo Gravatar says:

      Don’t hold your breath though, Shirley – it’s a long way from being a “done deal”.

  7. Lisa WeilNo Gravatar says:

    Jim, I love your blog. It’s a great public service.

    What’s the difference if a retiree over the age of 70.5 takes their RMD from their IRA — and separately makes a charitable contribution using cash in a taxable account who then takes their charitable deduction against their total income versus the retiree who simply employs a QCD from the RMD? Sounds to me like a book keeping advantage. In the first instance, the retiree reports more income but gets the charitable deduction to reduce their income. In the second case, they simply report less income by the amount of the charitable contribution. Doesn’t this net out to be the same in the end? What am I missing? Many thanks. — Lisa

    1. jblankenshipNo Gravatar says:

      Hi Lisa – thank you for your kind words.

      The primary difference in the scenario of using a QCD versus taking the distribution and then making a contribution from cash is that when you use a QCD you never have to recognize that income. In other words, your AGI doesn’t increase by the amount of the distribution from the IRA – and many items on your tax return (itemized deductions, etc.) are related to the AGI. When you use a QCD, that money isn’t added to the AGI. The net result would be *usually* positive by using a QCD instead of the other method.

      Hope this helps –

      jb

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