IRA

Qualified Charitable Distribution – Rules & Benefits

November 18, 2013

A qualified charitable distribution (QCD) is an alternative to discuss with these clients that allows them to satisfy their RMDs while not incurring a tax liability on the distributed amount.

As 2013 is quickly coming to an end, many financial advisors call their clients who are older than age 70½ to remind them about their required minimum distributions (RMDs) that must occur by 12/31/13. Many of these clients may not need the income from their retirement assets and at times would prefer not to incur the additional tax burden. A qualified charitable distribution (QCD) is an alternative to discuss with these clients that allows them to satisfy their RMDs while not incurring a tax liability on the distributed amount.

Thanks to the American Taxpayer Relief Act of 2012 (ATRA), the qualified charitable distribution (QCD) provision was extended through 2013. What does this mean? Taxpayers wishing to take advantage of this option have less than two months to act. Pursuant to the QCD rule, taxpayers who are older than age 70½ who need to take RMDs from their IRAs can have all or part of the RMD made payable to and sent directly to a qualified charitable organization—up to $100,000 per taxpayer. In addition, the QCD is not subject to ordinary income tax.

As we all know, taxpayers who are 70½ or older generally must take RMDs each year from their traditional IRAs. Failure to take the entire 2013 RMD by December 31 could subject the taxpayer to a 50% penalty on any insufficient amount that has not been taken.

 

How to Execute a QCD

Taxpayers should first consult with their tax advisors to determine if a QCD is in their best interests. If this strategy is in line with their goals, the next step is to work with their IRA providers to obtain the necessary form(s) and instructions to process a valid QCD. The taxpayer also needs to coordinate with the qualified charitable organization to obtain proper documentation. As mentioned earlier, in order for the QCD to be valid, the check issued by the IRA provider must be payable to and sent directly to the charitable organization.

 

Next Steps

So, if you're an advisor who makes RMD reminder calls to your clients, you may want to have a discussion with your clients about satisfying their RMDs through a QCD if the distribution is not needed for income, they don't want to incur a tax liability on the QCD distribution amount, and have charitable intentions.

If you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.

Picture of Steve Chmelka

Steve is a Senior Retirement Strategies Consultant with the Retirement Solutions Division at Pacific Life. He brings more than 25 years of industry experience in financial planning and wealth management, including detailed knowledge of both employer-sponsored retirement plans and retirement-planning strategies.

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