Congress has passed the “extenders bill” for 2014 (the Tax Increase Prevention Act of 2014). President Barack Obama just recently signed this into law. This bill revived qualified charitable distributions (QCDs) for 2014 only. There are NO transitional rules allowing 2014 qualified charitable deductions to be made in 2015 so you must get your 2014 it done before the end of 2014. That gives us very little time to get this done.
Here’s a quick review of the general rules for qualified charitable deductions.
- Only applies to IRA owners or beneficiaries age 70½ and over and is capped at $100,000 per person, per year.
- Only applies to direct transfers of IRA funds to charities and not gifts made to grant making foundations, donor advised funds or charitable gift annuities.
- No split interest gifts of any type will qualify Applies to IRAs, Roth IRAs and INACTIVE SEP and SIMPLE IRAs. It does NOT apply to distributions from any employer plans
- The charitable donation from an IRA will satisfy a required minimum distribution, but the IRA distribution is not includable in income
- No tax deduction can be taken for the charitable contribution
- For a married couple where each spouse has their own IRAs, each spouse can contribute up to $100,000 from their own IRAs.
- If more than $100,000 is withdrawn from the IRA and contributed to a charity, there is no carryover to a future year. The excess is taxable income and a charitable deduction can be claimed if the taxpayer itemizes
- The contribution to the charity would have had to be entirely tax deductible if it were not made from an IRA. There can be no benefit back to the taxpayer
- The distribution from the IRA to a charity can satisfy an outstanding pledge to the charity without causing a prohibited transaction
- The charitable substantiation requirements apply
- QCDs apply only to taxable (pre-tax) amounts. This is an exception to the pro-rata rule.
Nick Hughes is a Wealth Advisor with Franklin Wealth Management, a registered investment advisory firm in Hixson, Tennessee. In addition to advising clients since 2007, he has contributed to articles for Market Watch and FinancialPlanning.com and is a regular contributor to the Franklin Backstage Pass blog.
Important Disclosure Information for the “Backstage Pass” Blog
Please remember that past performance may not be indicative of future results. Indexes are unmanaged and cannot be invested into directly. Index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investments. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Franklin Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Franklin Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Franklin Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Franklin Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request
