Qualified Charitable Distributions (QCDs)

by Stephen Benevento

During the last two years some Walden clients have taken advantage of a provision of the Pension Protection Act of 2006 that allows tax-free distributions from IRAs for charitable purposes. Originally, this feature was set to expire in 2007. However, further legislation in October 2008 extended the provision through December 31, 2009. Only individuals age 70½ or older are eligible and the distribution must be paid directly to a qualified charity. Donor-advised funds and private foundations are not qualified for this purpose. Charitable distributions made to organizations declared to be unqualified will be treated as ordinary income. Since the donation is federal income tax free, you cannot file for a charitable deduction on your income tax return. Individuals may exclude up to $100,000 from their gross income using qualified charitable distributions (QCDs).

This is particularly good news for clients who have charitable intentions and are only withdrawing funds because the IRS requires the distribution due to their age. These distributions satisfy the IRA holder’s required minimum distribution (RMD). An important note regarding these distributions is that they will be reported on a 1099-R by Walden, or any institution, as an ordinary RMD with no indication of the charitable donation. IRA holders are responsible for indicating the QCD status on their federal income tax returns. So, if you use this provision be sure to communicate the donation to your tax preparer.