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By Sarah Brenner, IRA Technical Expert In the past few weeks, there has been upheaval in Congress. With the retirement of House Speaker, John Boehner, the Republicans in the House of Representatives are struggling to elect and unite behind a new Speaker of the House. This turmoil has far-reaching consequences as Congress has a packed legislative agenda and the end of 2015 is rapidly approaching. If you are an IRA owner considering a Qualified Charitable Distribution (QCD) for 2015, Congress' disorder has implications for you.
When QCDs are available, they allow an IRA owner who is age 70 ½ or older to directly transfer up to $100,000 annually from an IRA to charity, tax-free. If you are married, you and your spouse may both transfer $100,000 for a total of $200,000. QCDs are also available to IRA beneficiaries over age 70 ½, but are not available from company plans or active SEP or SIMPLE IRAs. QCDs are limited to pretax IRA funds. One key component of a QCD is that the funds must be paid directly from the IRA to the charity. You may not take a distribution from your IRA and then contribute it to a charity and consider that transaction a QCD. You may not receive anything of value from the charity in exchange for making the QCD.
One significant advantage of QCDs for many IRA owners is that taking a QCD can satisfy your required minimum distribution (RMD) for the year. When you satisfy your RMD by doing a QCD, those funds are not included in your taxable income for the year. For IRA owners who do not need their RMDs for living expenses and want to avoid the additional taxable income, a QCD is a valuable option. A QCD is also attractive to those taxpayers who do not itemize their deductions because it allows them to receive a tax break for a charitable contribution.
Congress first established QCDs as part of the Pension Protection Act of 2006. The QCD provision was popular but not permanent and QCDs expired at the end of 2007. Almost every year since, Congress has waited until the last minute and then eventually brought QCDs temporarily back to life. One year, the provision was brought back so late that Congress allowed prior-year QCDs in January. Last year, QCDs were brought back retroactively in the middle of December 2014, only to expire two weeks later at the end of the year. QCDs are currently unavailable for 2015. Now, with the current Congressional chaos, the fate of QCDs for 2015 remains more uncertain than ever. It is difficult to predict if or when Congress will be able to pass legislation extending this IRA tax break, despite its high level of bipartisan support.
If you are an IRA owner interested in doing a QCD, you may consider doing the transaction now even though QCDs have not yet been extended for 2015. If you follow the correct procedures, the transaction will qualify if Congress does what it has done in past years, bring back QCDs and make them retroactive for the year. Even if this does not happen, you will have satisfied your RMD, and you may still be able to deduct the amount as a charitable contribution if you itemize deductions on your tax return.
QCDs offer advantages to both the IRA owner and to charitable organizations and enjoy wide bipartisan support. It is unfortunate that this year, like almost every other year since the establishment of this IRA tax break, the availability of QCDs is once again bogged down by partisan politics. Let’s hope at some point Congress not only brings back QCDs, but makes them permanent so there will be no uncertainty and waiting in future years.