The Internal Revenue Service (IRS) has recently issued a reminder to Individual Retirement Arrangement (IRA) owners aged 70½ and over. These individuals are allowed to transfer up to $100,000 annually to charity tax-free.
These transfers, known as Qualified Charitable Distributions (QCDs), provide a convenient method for eligible older Americans to contribute to charity before year’s end. For those aged at least 73, QCDs count towards the IRA owner’s required minimum distribution (RMD) for the year.
To set up a QCD for 2023, an IRA owner should contact their IRA trustee soon to ensure the trustee has ample time to complete the transaction before the end of the year. Typically, traditional IRA distributions are taxable when received. However, provided they’re paid directly from the IRA to an eligible charitable organization, QCDs become tax-free.
The IRS states that QCDs must be made directly by the IRA’s trustee to the charity. Distributions such as electronic payments made directly to the IRA owner do not qualify as QCDs. Similarly, a check made payable to the IRA owner is not a QCD.
Each year, an IRA owner aged 70½ or over can exclude from gross income up to $100,000 of these QCDs. For a married couple where both spouses are aged 70½ or over and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year.
The QCD option is available regardless of whether an eligible IRA owner itemizes deductions on Schedule A. Transferred amounts aren’t taxable, and no deduction is available for the transfer.
A 2023 QCD must be reported on the 2023 federal income tax return, which is filed during the 2024 tax filing season. In early 2024, the IRA owner will receive Form 1099-R from their IRA trustee, showing any IRA distributions made in 2023, including both regular distributions and QCDs.
Like other IRA distributions, QCDs are reported on Line 4 of Form 1040 or Form 1040-SR. If part or all of an IRA distribution is a QCD, enter the total amount of the IRA distribution on Line 4a. Then, if the full amount of the distribution is a QCD, enter 0 on Line 4b. If only part of it is a QCD, the remaining taxable portion is normally entered on Line 4b. Either way, be sure to enter “QCD” next to Line 4b.
As with deductible contributions, the donor must receive a written acknowledgement of their contribution from the charitable organization before filing their return. The acknowledgement must state the date and amount of the contribution and indicate whether the donor received anything of value in return.
For more information about IRA distributions and QCDs, refer to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
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