Qualified Charitable Distributions

Occasionally in this spot I talk about making charitable donations. This often comes in the form of how it relates to tax deductions, but it is also something of value on its own. Combining both of those dynamics this time, I want to talk about how those who are taking distributions from a traditional IRA or other retirement plan can use part of it for a qualified charitable distribution (QCD).  

A QCD occurs as a direct transfer of funds from your IRA custodian to a qualified charity. Utilizing this can have many advantages depending on your personal situation. It can count toward satisfying a required minimum distribution but is excluded from taxable income. A QCD also does not require that you itemize deductions to receive that advantage.

This recent article will give you some of minutiae of how this would look on your tax return and the math behind it. Personally, though, I would like to spend a little time saying more about what the article only quickly mentions, which is making sure your paperwork is in order.

I think that such ideas are often glossed over, because it can seem obvious that you must have paperwork that fits the rules. The problem, though, is that not many people may know the rules. So, if you are making a QCD from a retirement plan, then know you should also receive a statement from the charity that they received that money from you. This is something that reputable charities do as a rule, but it is also something that many people throw out when received. It is nice to have your gift acknowledged, but it is not like that acknowledgment becomes a keepsake. Even if not a memento, though, it does become part of your tax paper trail.

This is because you are also going to receive a 1099-R from the retirement plan that says how much money was disbursed, but it will not specify where it went. You are going to want to be able to back up how much of it was sent to charity.

The most beneficial ways to use this (and how much money is involved) will vary widely based on individual situations. It is a possibility that not everyone is aware of, though, so I wanted to have this blog be a possible starting point for that conversation. So as always, please do not hesitate to contact us if you would like to continue the conversation.

Warmly,

Josh Bousquet
Connect to Us ~ Facebook ~ Twitter