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The IRA Charitable Rollover, also known as the Qualified Charitable Distribution (QCD), has been a frequent topic of conversation over the last few years. It’s a great strategy for anyone over the age of 70 ½, but it’s particularly powerful for individuals that don’t itemize deductions, as the IRA Charitable Rollover offers an alternative to a charitable deduction. Rather than taking a deduction, the individual can make the required (and otherwise taxable) distribution tax-free.
As if that wasn’t incentive enough, IRA Charitable Rollover gifts made to a charitable giving fund at the Community Foundation may also be eligible for the Endow Iowa Tax Credit. Not only does the individual get the benefit of a tax-free IRA distribution, but they also receive a 25% state tax credit to be used on their Iowa tax return.
The rules around the IRA Charitable Rollover seem to change every few years, and last year was no exception. Late in 2019, Congress passed the SECURE Act. Within the act are three key changes and considerations for charitable giving related to IRAs.
- First, the required beginning date for mandatory distributions increased from age 70 ½ to 72. While this effects the requirement to make distributions, it has no bearing on past legislation around IRA Charitable Rollovers. The minimum age for IRA Charitable Rollovers remains at 70 ½, meaning an individual can give charitably from their IRA before they are required to make distributions.
- Second, the act repeals the maximum age for IRA contributions. The ability to contribute beyond age 70 ½ could affect the tax-free nature of future charitable distributions. Since contributions are eligible for a deduction from gross income, the legislation provides a caveat to prevent double-dipping with a tax-free distribution, stating that the cumulative total of contributions into the IRA after 70 ½ will be reduced from future tax-free charitable distributions.
- Finally, the act includes a provision for inherited IRAs, stating full distribution must occur within ten years for most non-spouse beneficiaries. This makes for interesting estate planning conversations that could result in an increased tendency towards naming charities, rather than individuals, as IRA beneficiaries.
Contact our team to talk further about these changes and the opportunities available through IRAs at the Community Foundation.
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