PHONE: (717) 303-1999

Financial and Retirement Planning Blog

What You Should Know About 2018 Qualified Charitable Distributions

You have until December 31 to do a qualified charitable distribution (QCD) for 2018. This is an effective tax strategy that many individuals are overlooking. A QCD is worth considering if you are donating to charitable organizations and taking required minimum distributions (RMDs) this year.  With the increase in the Standard Deduction, many people (specifically Retirees) won’t be itemizing. If you plan to give to charity and you’re over 70 & ½ , using a QCD can be an efficient way to accomplish your charitable giving goals while being tax efficient.

If you are an owner or beneficiary of an IRA and you are at least 70 ½ years old, you can make a QCD, unless you intend to distribute funds from a Roth IRA. Read on to learn about the advantages and stipulations of QCDs.

Tax Break on Giving Back

Thanks to tax reforms, QCDs are more beneficial than ever for the 2018 tax year. If you take the standard deduction, you would be eliminating your tax deduction for gifts to charity since you would not be itemizing deductions. You can get a tax break for this year’s charitable contributions with a QCD.

Lower AGI

You can add a QCD to the standard deductions. It lowers your AGI by allowing you to deduct charitable donations disbursed from your IRA from your income.

QCD Limits

The annual limit is $100,000 per individual. Married couples can both quality, each contributing a QCD of $100,000 each year. However, you will not be able to take a tax deduction for the charitable gift.

How to Make a QCD

You must make your QCD as a direct transfer from the IRA to the nonprofit of your choice. You could also have the IRA issue a check made payable to the your preferred organization. If you receive a distribution, you are not allowed to forward those funds to your charity.

You can make a QCD from IRA, Roth IRA, SIMPLE IRA, or inactive SEP. However, you are not allowed to do a QCD from any employer plan. QCDs can only apply to taxable amounts in your retirement account. Because of this exception to the pro-rata rule that typically applies to traditional IRA distributions, Roth IRA QCDs are not common.

What about RMDs?

The amount you transfer from your IRA to your nonprofit as a QCD will count toward your RMD for 2018. Your QCD may help you meet all or a portion of your RMD. For instance, if your 2018 RMD is $20,000, you can withdraw $10,000 and do a $10,000 QCD.

How to Report on Tax Return

To report a QCD on your tax return, report the total amount of the donation on the line for IRA distributions. Enter “zero” on the line for the taxable amount if the entire amount was a QCD, and enter “QCD” next to the line. You can find more information in the Form 1040 instructions.

You will be required to file Form 8606, Nondeductible IRAs if:

-the QCD is disbursed from a Roth IRA; or

-you make the QCD from a traditional IRA in which you have basis and receive an IRA distribution during 2018.

Words of Caution

You must not receive any remuneration of any kind — financial, gift, or otherwise –for the donation. QCDs do not include gifts to private foundations or donor advised funds.

If you plan to do a QCD for this year, inform your tax preparer. The 2018 Form 1099-R that you will receive from the IRA custodian will not likely have any information regarding a QCD if the donation is made close to the end of the year. Make them aware of the the disbursement to prevent any oversight.

Failing to take your RMD exposes you to penalties of up to half of the amount you were supposed to have taken. QCDs allow you to donate to your favorite causes tax-free, help you meet your RMD, and avoid the stiff and unnecessary cost of not using your money. You still have time to tap into this tremendous opportunity.

Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor. Pennsylvania Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Pennsylvania Wealth Management and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors.

Million Dollar Round Table (“MDRT”) is a membership organization. Qualifying criteria for membership includes attaining specified levels of commissions earned, premiums paid or income earned on the sale of insurance and other financial products. MDRT membership requirements include the payment of annual dues, compliance with ethical standards, and maintaining good standing with an MDRT-approved professional association. The MDRT logo and/or trademarks are property of their respective owners and no endorsement of Jason Bergey or Pennsylvania Wealth Management is stated or implied. MDRT and Retirement Wealth Advisors, Inc. (RWA) are not affiliated.