Individual Retirement Accounts Qualified Charitable Distribution (QCD) - 2021 - CPA Clinics
In general, distributions from a traditional IRA are taxable in the year received. However, a qualified charitable distribution (QCD) is generally a nontaxable distribution made directly by the trustee of your traditional IRA (other than a SEP or SIMPLE IRA) to an eligible charitable organization. If all of the qualifications are met, a QCD is nontaxable and you cannot claim a charitable contribution deduction for it. Taking a QCD can help lower taxable income.
Certain qualifications must be met:
Example: On December 23, 2021, Jeff, age 75, directed the trustee of his IRA to make a distribution of $70,000 directly to a qualified charitable organization. The total value of Jeff’s IRA is $100,000 and consists of $60,000 of deductible contributions and earnings and $40,000 of nondeductible contributions (basis).
Since Jeff is at least age 70½ and the distribution is made directly by the trustee to a qualified organization, the part of the distribution that would otherwise be includible in Jeff’s income is a QCD.
In this case, Jeff has made a QCD of $60,000 (his deductible contributions and earnings).
Jeff includes the total distribution ($70,000) on line 4a of Form 1040. Jeff enters -0- on line 4b. This is Jeff’s only IRA and he took no other distributions in 2021.
He also enters “QCD” next to line 4b to indicate a qualified charitable distribution. After the distribution, his basis in his IRA is $30,000.
In 2021, Jeff itemizes his deductions and files Schedule A (Form 1040), deducting the $10,000 portion of the distribution attributable to the nondeductible contributions as a charitable contribution. He cannot take the charitable contribution deduction for the $60,000 portion of the distribution that was not included in his income.
Example: Janet is single, age 73, and wants to contribute $5,000 to a qualified charity using funds from her IRA. There are two options available to her:
With either option, the $5,000 would count toward meeting her RMD.
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