For individuals holding traditional or inherited IRAs who don’t depend on the income, a Qualified Charitable Distribution (QCD) presents a strategic way to enhance tax savings while contributing to favored charities.
Understanding Qualified Charitable Distributions (QCDs)
QCDs enable individuals aged 70 ½ or older to make tax-free donations from their IRAs directly to charities. Starting in 2024, the allowed distribution amounts to $105,000 per person, doubling to $210,000 for married couples. These IRA asset gifts are particularly beneficial for seniors unable to itemize charitable deductions under current tax regulations, and they also satisfy any required minimum distributions for the year.
Tax Implications for Beneficiaries
Recent changes to inherited IRA regulations can impose significant tax liabilities on beneficiaries. IRAs and related retirement accounts might be subject to federal, state, and estate taxes, diminishing their value. For instance, cashing out a retirement plan can push a beneficiary into a higher tax bracket, with the received amount treated as taxable income. Additionally, if the deceased was over 59-1/2, the IRA might incur Pennsylvania inheritance tax*.
QCD Eligibility Criteria
- The donor must be at least 70 ½ years old at the time of the distribution.
- Eligible IRAs include Traditional IRAs (even Inherited IRAs) or inactive SEP or Simple IRAs.
- Funds must be transferred directly to a 501(c)(3) charity, such as The Foundation for Delaware County.
- Only public charities are eligible for QCDs. Private foundations, donor-advised funds, and supporting organizations are excluded, but designated and field-of-interest funds at the Foundation qualify.
Steps to Execute a QCD
- Distributions must be sent directly from the IRA trustee to the charity, not deposited by the donor first.
- QCDs can aid any public charity, including The Foundation for Delaware County.
- While QCDs cannot benefit donor-advised funds, they can support or establish other charitable funds at the Foundation, such as:
- Designated Funds
- Scholarship Funds
- Field of Interest Funds
Year-End Giving Reminder
To ensure contributions count for the 2024 tax year, it’s advisable to initiate IRA distributions by Monday, Dec. 15.
*When a spouse is the designated beneficiary of a traditional IRA, they may roll over the inherited IRA into their own, deferring income tax payments until reaching 70 ½, and over their lifetime as IRA proceeds are withdrawn.
Reach out to us to discover how we can assist you and your philanthropic clients. For inquiries or to arrange a personal consultation at no cost, contact Monika Collins at [email protected]; 610-744-1015.
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