Congress has passed the “extenders bill” for 2014 (the Tax Increase Prevention Act of 2014) allowing QCDs for 2014
On December 19, 2014, with just over two weeks left in the 2014 calendar year, Congress passed the “extenders bill” for 2014 (the Tax Increase Prevention Act of 2014). The bill, which extends the life of a number of tax breaks through 2014, passed the Senate 76-16. Only 60 votes were needed for approval. President Barack Obama is expected to sign the bill into law shortly. This bill revived qualified charitable distributions (QCDs) for 2014 only. A QCD must be made in 2014 and cannot be made in 2015. “The “extenders bill” which extends Qualified Charitable Distributions for 2014 offers exciting tax planning opportunities to retirement account holders,“ stated Adam Bergman, a tax partner with the IRA Financial Group. “Of course, most tax practitioners would have like to have the QCD extended much earlier in the year allowing for more time for tax planning, but it is a huge boost that it was included in the bill,“ stated Mr. Bergman.
According to Mr. Bergman, the QCD is essentially a tax efficient method for donating to a charity in light of the IRS required minimum distribution (RMD) rules. Under the RMD rules, one is required to withdraw a minimum amount from your retirement account each year and report that amount as income. You generally have to start taking withdrawals from your IRA or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner. Essentially, a QCD allows to take up to $100,000 and donate it directly to a charity out of an IRA so the charity gets the full $100,000 and you can reduce the amount of your RMD. The downside is that you don’t get the charitable deduction, but the upside is that you don’t have to claim the charitable donation as income as part of your RMD. The following are some of the main rules involved in taking a QCD for the 2014 taxable year: (i) The IRA owner must be age 70 ½ or older; (ii) The donor must directly transfer the money tax-free to an eligible organization; (iii) The maximum amount that an IRA owner may transfer annually tax-free is $100,000 to an eligible organization; (iv) Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible; (v) Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless non-deductible contributions are transferred; (vi) Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules; (vii) and for a married couple where each spouse has their own IRAs, each spouse can contribute up to $100,000 from their own IRAs.
The inclusion of the QCD law in the “extenders bill” will help retirement account holders shied up to $100,000 of income that would have otherwise have to pay as an RMD and at the same time help many U.S, charities that could really benefit from the funds. “The QCD law is a really generous tax break the offers to retirement account holders. The QCD allows to take up to $100,000 that would have been subject to tax as part of their RMD requirements and and donate it directly to a charity out of an IRA so the charity gets the full $100,000,” according o Mr. Bergman. “The IRS, of course, is not going to allow you to reduce your income tax as well as receive a charitable deduction, but the QCD law is a noble gesture on the part of the IRS to help charities out, “stated Mr. Bergman. The downside is that you don’t get the charitable deduction, but the upside is that you don’t have to claim the charitable donation as income as part of your RMD.
In the case of a “checkbook control” self-directed IRA LLC, an IRA holder that wishes to make a QCD for the 2014 taxable year, must send the funds to the IRA custodian and then have the IRA custodian direct the funds to the charity. The QCD should not be made directly from the IRA LLC to the charity, but should go through the IRA custodian.
The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.
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