Each year the IRS reminds owners of traditional IRAs who are over 70-1/2 that they may make a charitable gift from these funds. This type of gift/donation is known as a qualified charitable distribution (QCD). For those age 73 and over the QCD may fulfill part or all of your required minimum distribution (RMD) for the year.
The following information will help you understand how to do a QCD, what is required to report a QCD on your tax return and the required information on your acknowledgment from the non-profit.
Although the procedure seems bothersome it is well worth it for the donor (tax savings) and do nee(funds to continue operating the non-profit).
HOW TO SET UP A QCD
A traditional IRA owner should contact his custodian (ex. UBS, Fidelity, etc.) to start the process for a QCD. While your distributions from a traditional IRA are normally taxable, the QCD payouts will be tax-free as long as they are paid directly to a qualified non-profit. AN ELECTRONIC PAYMENT MADE OUT TO THE IRA OWNER DOES NOT QUALIFY AS A QCD. The owner must be age 70-1/2 or older and the limit for 2024 is $105,000. If both spouses are over 70 1/2 and each has their own IRA, then the limit would be $210,000 that can be distributed to non-profits for 2024. Since QCD’s are not taxable, there will be NO charitable deduction for making the gift. HOWEVER, the donation will decrease the amount of taxes you pay for the year and meet all or part of you RMD.
HOW TO REPORT YOUR QCD
The QCD must be reported on your 2024 federal tax return. Your custodian will send you a FORM 1099-R that you should give to your CPA. This form will show both the amount of the QCD and your total RMD distribution for 2024. The QCD portion will NOT be taxable .
HOW TO RECEIVE A QCD ACKNOWLEDGMENT
Even though your QCD is not deductible as a charitable contribution; you are required to obtain a written QCD acknowledgment from the non-profit prior to filing your return. File the letter with your copy of your return.
Start this process NOW in November or early December. Some IRA custodians may take longer than expected to process the transfer. This process MUST be completed by December 31, 2024 to qualify as an RMD for 2024.