Required Minimum Distributions For Charities

Last week I had a reader e-mail me that is currently over the age of 70 1/2, and was required to begin his required minimum distributions. Being in a position where he didn’t really need the money, the reader was curious if he could take the full distribution and have it sent directly to a charity of his choice, thus having to avoid paying any income tax. My first thought was yes, because I had a client do such last year, but I thought I should dig a little deeper to make sure.

The Qualified Charitable Distribution

The Pension Protection Act of 2006 allowed what was called a qualified charitable distribution (QCD). The QCD allowed for the year’s 2006-2007 that one could take up to $100,000 out of their IRA and if it was sent directly to a 501(c) charity, then the individual would not have to pay the income tax. For those with the philanthropic heart, it was a very satisfying strategy to take advantage of.

Will The QCD Make Its Return?

Unfortunately, effective 2008 the Act did not continue and the qualified charitable distribution is no more. If one is still interested in giving to a charity, you would have to take the distribution from the IRA and then pay the corresponding tax. Then once donated to the charity, you could then deduct the proper amount on your itemized tax return. It’s not as appealing as the above, but still allows you to give with an incentive. As it stands, the Qualified Charitable Distribution still has life and may be seen again. Some expect for it to reinstated sometime down the road.

Update on 10/4/2008:
President Bush has signed the Emergency Economic Stabilization Act of 2008, which extends for 2008 and 2009 an expired provision permitting IRA owners, age 70½ and older, to make distributions to qualified charities of up to $100,000 per year (Tax Extenders and Alternative Minimum Tax Relief Act of 2008, H.R. 1424).