Required Minimum Distributions (RMD) from IRAs can be a burden for taxpayers as they raise your annual income levels and can boost you into a higher tax bracket. By using the Qualified Charitable Distribution (QCD) Rule, there is a way for IRA’s to do good and for the owner to avoid tax on their RMD. This rule allows IRA owners to exclude up to $100,000 of their RMDs from their income when the distribution is given to a qualified charitable organization. That’s right, it’s a tax-free distribution to a charity. You win, the charity wins, and the IRS loses.
Some of the rules and regulations are as follows:
- You MUST be age 70½ or older on the date of the distribution.
- The maximum annual exclusion per individual is $100,000.
- The charity must qualify as a 501(c)(3) organization and be eligible to receive tax-deductible contributions.
- Each check will be made payable to the qualified charity and list your name as a donor. Note: You should follow up with the charity directly for a receipt of your donation.
To break it down further, the charitable organization must qualify as a 501(c)(3) organization, which means it is federally tax-exempt as a non-profit organization. Of course, the owner of the IRA can give a larger sum than $100,00 to the charity of their choosing, though any excess distributions will not be excluded from their Adjusted Gross Income (AGI). It is also very important to obtain a receipt from the selected charity for tax purposes.