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Question for the Money Doctors

Question submitted on Jul 22, 2013.

Question

I want to make a Qualified charitable distribution for 2013
If a charity has a "501c3" IRS status is that sufficient for qualifiing?
Thank you

Answer

I am so glad you are considering the Qualified Charitable Distribution for 2013. It makes a lot of sense for many people and help you reduce your taxes.

The distribution must come directly from the IRA account to a 170(b)(1)(A) organization which includes 501(c)(3) charities and public foundations. Please check with the organization to make sure they qualify. You cannot take the distribution and sign it over to the charity. Please work with the charity to make sure you give the appropriate information to your IRA administrator so the check gets to the right place.

In summary, you can do this if:

1. You are at least 70 1/2 at the time of the distribution.

2. Cannot be used for a gift annuity, charitable remainder trust, or donor advised fund.

3.Distribution goes directly from the IRA to a qualified charity.

4. Distribution comes from an IRA and not a SEP or SIMPLE IRA that is still active. Cannot come from any employer plans such as a 401(k), 403(b), 457, etc.

5. You cannot also take a charitable deduction for the QCD. This would be double dipping.

6. The maximum QCD is $100,000 per year.

What are the advantages of the QCD?

1.The distribution is not considered taxable income.

2.This can help reduce the amount of your Social Security that is taxable.

3. This may help reduce the amount of Medicare premium you are paying.

4.If you don''t or cannot itemize, you will not pay tax on an amount you would have given to charity anyway.

5.By reducing your Adjusted Gross Income, this can reduce the AGI related phaseouts regarding medical expenses, exemptions, itemized deductions, and miscellaneous deductions.

6. This can help fulfill your Required Minimum Distribution which you are required to take from your IRA when you are over 70 1/2.

As you can see, I am a big fan of QCDs.

What about 2014?

The QCD is available for 2013, but we don''''t know about 2014.

If you want to do this for 2014, I would do it anyway and see what happens with the tax legislation. If Congress renews it,&ampnbsp you will be covered. If they do not renew it, you would report the distribution as income on your tax return and deduct the charitable contribution on Schedule A.

On your 2013 tax return, remember to report this on Line 15a and you put a QCD next to line 15b with a zero in 15b showing it is not taxable to you. (Assuming your entire IRA distribution is a QCD. Otherwise the taxable portion of your distribution will be in Line 15b.)


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