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If thinking about making a donation to charity, consider a qualified charitable distribution (QCD) from your IRA. A new law finally makes these transfers a permanent planning option.
In December 2015, President Obama signed into law the "Protecting Americans from Tax Hikes Act of 2015." This new ruling made permanent many tax breaks that had been dubbed "extenders" as taxpayers would have to wait -- typically until the last minute -- for lawmakers to reinstate them for another year. Among the most popular of the bunch is the IRA charitable transfer provision. So if you are age 70½ or older and charitably minded to boot, consider tapping your IRA.
The qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate up to $100,000 per year to qualified charities. A QCD can be made tax free, can help minimize your taxable estate, and can help fulfill your philanthropic desires -- all while satisfying your annual required minimum distribution (RMD).
Benefits of a QCD - Without this provision, withdrawals from traditional IRAs and certain Roth IRAs (including those held for less than five years) would be taxed as income, even if they were directed immediately to a charity. While the donor would receive a tax deduction for his or her donation, various other federal and state tax rules would prevent the deduction from fully offsetting this taxable income. As a result, many donors have chosen not to use IRA assets for lifetime gifts. Now, the qualified charitable distribution permanently eliminates this problem. While there is no tax deduction allowed for the donated assets, they don't count as income either.
You may benefit most from implementing the QCD strategy if you:
Limitations of a QCD - There are limitations to making a QCD from your IRA, including the following:
This communication is not intended to be tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your tax professional to discuss your personal situation.
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