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Time is Short for IRA Gifts to Charity

As December 31 approaches, owners of traditional IRAs who are over age 70 may be considering a charitable gift before the end of this year. The IRS refers to an IRA charitable rollover gift as a qualified charitable distribution (QCD). An additional benefit for those who are age 73 or older is a QCD may fulfill part or all of your required minimum distribution (RMD) for this year.

Because your IRA custodian may take time to process a QCD and it must be completed by December 31, it is important to proceed promptly with an IRA gift. During 2023, an IRA owner may give up to $100,000 directly from the IRA custodian to a qualified charity. Another QCD option is a one-time gift of up to $50,000 for a charitable gift annuity (CGA), charitable remainder unitrust (CRT) or charitable remainder annuity trust (CRAT).
  1. Direct IRA Rollover to Charity — A traditional IRA owner should contact his or her IRA custodian to start the process for a QCD. While distributions from a traditional IRA are normally taxable, the QCD rollovers will be tax-free if they are paid directly to a qualified charity. The QCD is made through a check payable to the charity. The IRA owner must be age 70 or over and the QCD cannot exceed the 2023 limit of $100,000. If spouses are both over age 70, then the $100,000 per person limit may allow a couple to distribute up to $200,000 per year to a charity. Because the QCDs are not taxable, there will be no charitable deduction.
  2. IRA Rollover to Life Income Plan — A traditional IRA owner may contact his or her IRA custodian to make a QCD up to $50,000 for a CGA, CRUT or CRAT. The gift annuity or charitable trust must pay 5% or more and can only benefit the IRA owner, their spouse or both. While the $50,000 IRA payout for a gift annuity or charitable trust is not taxable, the annuity or trust payouts will be taxable ordinary income and there will be no charitable deduction.
  3. How to Report Your QCD — Your QCD must be reported on your 2023 federal income tax return. You can expect to receive an IRS Form 1099-R from your IRA custodian. This will show the traditional IRA distribution in Box 1. You must report the IRA distribution on Line 4 of IRS Form 1040. You will enter the total amount of the IRA distribution on line 4a. If the full amount is a QCD, you then enter zero on line 4b. If part of the distribution is a QCD, the taxable portion is normally entered on line 4b. You must enter "QCD" next to line 4. If you have entered zero on line 4b, the entire QCD will not be taxable.
  4. How To Receive a QCD Acknowledgment — Your QCD is not deductible as a charitable contribution. However, with a direct IRA rollover you are required to obtain a written QCD acknowledgment from the charity prior to filing your tax return. This acknowledgment should state the date and amount of the QCD and indicate that the donor has received "no goods or services in exchange for the gift". For an IRA Rollover to Life Income Plans, the acknowledgement should also include a statement that the donor received "no goods or services in exchange for the gift", "except for the [CGA/CRUT/CRAT]" and include the funding value and the approximate value of the donor's benefit (i.e. the present value of the income interest or contract value). You should retain the acknowledgment with your other 2023 tax records.
Editor's Note: Many individuals will fulfill part or all of their RMD this year through a gift to charity from a traditional IRA. If a donor has the right to make distributions from his or her traditional IRA through a checkbook, it will be important to send the check directly to the charity. Please allow sufficient time for the charity to deposit the check and for the financial institution to process the check. This process must be completed by December 31, 2023.

Published December 15, 2023
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