Required Minimum Distributions (RMD) from IRAs can be a burden for taxpayers, by raising your annual income levels and possibly boosting you into a higher tax bracket. Using the Qualified Charitable Distribution (QCD) Rule, there is a way for IRA’s to do good. This rule allows IRA owners to exclude their RMDs from their annual income if given to a qualified charitable organization. Essentially, owners can deduct their RMDs on their tax returns if they give the money to a charity. A key benefit to the QCD is you pay zero tax on the distribution. That’s right, it’s a tax free distribution to a charity. You win, the charity wins, and the IRS loses.
Some of the rules and regulations are as follows:
- You MUST be age 70½ or older on the date of the distribution.
- The maximum annual exclusion per individual is $100,000.
- The charity must qualify as a 501(c)(3) organization and be eligible to receive tax-deductible contributions.
- Each check will be made payable to the qualified charity and list your name as donor. Note: You should follow up with the charity directly for a receipt of your donation.
To break it down further, the charitable organization must qualify as a 501(c)(3) organization, which means it is federally tax exempt as a non-profit organization. Of course the owner of the IRA can give a larger sum than $100,00 to the charity of their choosing, though any excess distributions will not be excluded from their Adjusted Gross Income (AGI). It is also very important to obtain a receipt from the selected charity for tax purposes.
Mat has been at the forefront of the self-directed IRA industry since 2006. He is the CEO of Directed IRA & Directed Trust Company where they handle all types of self-directed accounts (IRAs, Roth IRAs, HSAs, Coverdell ESA, Solo Ks, and Custodial Accounts) which are typically invested into real estate, private company/private equity, IRA/LLCs, notes, precious metals, and cryptocurrency. Mat is also a partner at KKOS Lawyers and serves clients nationwide from its Phoenix, AZ office.
He is published regularly on retirement, tax, and business topics, and is a VIP Contributor at Entrepreneur.com. Mat is the best-selling author of the most widely used book in the self-directed IRA industry, The Self-Directed IRA Handbook: An Authoritative Guide for Self-Directed Retirement Plan Investors and Their Advisors.