Since the Secure Act was attached to the appropriations bills, I have been fielding a flurry of questions about its impact. Perhaps one of the most questioned aspects is the Act’s effect on qualified charitable distributions (QCD). Due to the pushback of the required beginning date for required minimum distributions (RMDs) to age 72, the removal of an age 70½ limit on contributions to IRAs, and an “anti-abuse” clause addition for QCDs, it is expected that the Secure Act will have a major impact on QCDs.
Let’s start with a quick refresher on what a QCD is. A QCD is a direct transfer of funds from an IRA account, which is therefore payable to a qualified charity. This can be counted as saving toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met. In order to engage in a QCD, the individual must own an IRA, be over age 70½, and the annual total QCD contributions from all IRAs cannot exceed $100,000 per person (meaning each spouse could do up to $100,000, but an individual cannot contribute $200,000). However, you cannot use a QCD to send money directly to a donor-advised fund (DAF). Additionally, inherited IRAs count and can be used for QCDs, but the beneficiary still needs to be over age 70½. Lastly, you cannot send nondeductible money in an IRA over to a charity via a QCD, as it must be tax-deferred money.
When you use a QCD, the distribution does not show up as taxable income at all for the owner. However, this does not imply that you can “double dip,” and take an additional charitable deduction for the QCD. Additionally, you can use the QCD to offset RMDs.