Time’s Up for Qualified Charitable Distributions from Self-Directed IRAs
If you were planning on making a qualified charitable distribution from your Self-Directed IRA and you were just waiting for the window of opportunity to do so without tax penalty, that window has open and shut.
A qualified charitable distribution, or QCD, is a way IRA owners, including Self-Directed IRA owners, can donate money to charities while reducing your required minimum distribution at the same time. You don’t get the deduction for charitable giving – after all, if the money’s in a traditional IRA, you’ve already taken the deduction (discounting non-deductible contributions), so there’s nothing to deduct against.
The provision helped IRA owners protect up to $100,000 of income that they would otherwise have to declare as an RMD and pay taxes on. The donation satisfied any RMD requirements up to the amount donated. Married couples filing jointly could donate up to $200,000 (and cancel out that much in RMDs).
SEPs and SIMPLE IRAs weren’t eligible.
The window for doing so slammed shut at the beginning of this year, but Congress flung it open again on December 19th of 2014 – for just two weeks, with the Tax Increase Prevention Act of 2014. The opportunity expired at midnight on December 31st. For now.
As it stands, you can still take money out of IRAs to donate to charities… you just can’t reduce your RMD by doing so.
Instead, you can take a distribution directly and then forward the distribution to the charity – taking the tax deduction on your own personal income tax return. The catch: You can only deduct charitable gifts as miscellaneous itemized deductions, which means A.) You have to itemize your deductions to get any benefit, and B.) Those combined miscellaneous itemized deductions have to exceed the 2 percent of your adjusted gross income threshold in order for them to reduce your tax bill.
If you have a Roth IRA, then your distribution is tax-free (assuming the money’s been in it over 5 years and you’re over age 59½ or taking Section 72(t) distributions), and there are no RMDs to worry about, anyway. In this case, you may still be able to take the tax deduction if you have other income to deduct against. You can’t deduct against the income you receive from the Roth IRA, though, because it’s considered non-taxable income.
If you did, in fact, take advantage of the provision, don’t forget to consult with your Accountant or CPA regarding how the gift should be reported to the IRS.
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