Someone in Congress or the administration must be enamored with these distributions from IRAs. First, they went away at the end of 2009 but were resurrected by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. They were revived again by the American Taxpayer Relief Act of 2012 and will survive through at least the end of 2013.


These distributions are permitted by an IRA owner or beneficiary who is older than age 70½. Such individuals can transfer funds directly from an IRA (or inherited IRA) to a charity without having the distribution be taxable as an actual distribution.


The amount of the distribution (and the accompanying income exclusion) cannot be greater than $100,000 in 2013, and this limit applies to each IRA owner. Consequently, a husband and wife with sufficient means could each transfer up to $100,000 to a charity from their individual IRAs this year.


Bear in mind that there is no income tax deduction for such charitable transfers.


These distributions can be made to any charity but not to a donor-advised fund or to a supporting organization or to certain private foundations. Split-interest gifts are out, as well.


These transferred amounts are excluded from the transferee’s gross income. As a result, the transferred funds are not included in the individuals’ gross income for purposes of computing the 50 percent or 30 percent of income limits that apply to other charitable gifts.


The donor of a QCD can be either a person donating from his/her own IRA as well as a beneficiary who donates from an inherited IRA.


The only requirement is that the donor must be at least 70 ½. Other provisions in the tax code specify the “year” in which the individual reaches 70 ½, but these QCDs can only occur after the date that the individual reaches age 70½.


The income tax reporting of these distributions is tricky, since the 1099-R form that the IRS custodian will send out at tax time will be sent to the donor, and this form will not show the distribution to be non-taxable.


The IRS instructions for form 1040 state that the transferred amount should be shown as “other income” on line 15a of the 1040 form. The taxable portion – zero – is then entered on line 15b, and the taxpayer/donor will enter the text “QCD” in the space next to line 15b.


According to the IRS, they wanted to ensure that IRA providers had no “special reporting” to contend with.


There are some planning opportunities with these QCD’s beyond the fact that they are low-tax ways to satisfy the required minimum distribution rules, provided that an individual has not already taken his RMD for 2013.


If he/she has, there is no way to put that RMD back into the IRA.


Other goodies that accompany QCDs are that, since they do not increase one’s adjusted gross income, the deductibility of medical expenses is not decreased, nor are miscellaneous deductions that are subject to the 2 percent of AGI limit. Moreover, a QCD does not increase the taxability of Social Security benefits, increase one’s Medicare premiums or increase South Carolina income taxes, which utilize the federal AGI as a starting point in computing taxable income.


It is important to remember that these QCDs are only permitted if they are direct transfers from an IRA to a permitted charity. If the money is first paid to the individual and thence to the charity, all bets are off and unwanted tax ramifications will ensue.


Be sure to consult with your tax adviser before actually making a qualified charitable distribution from an IRA and remember, too, that QCDs are only allowable from taxable IRAs and not from other types of retirement plans.


Got a financial planning question for Greg? You may email him at greg@lifesolutionsonline.net.


Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.