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Advisor's Guide to Qualified Charitable Distributions

Who can do these beneficial transfers, with how much money, to what kinds of charities--and how to execute (and report) the QCD.

Natalie Choate, 11/11/2016

Some IRA owners can legally transfer money directly from their IRAs to charity, either in fulfillment of their required minimum distribution (RMD) or otherwise. Advisors need to know who can do this with how much money, which kinds of charities qualify, how to do (and how to report) the transfers, and the benefits of this type of transfer.

Which retirement plans: Qualified charitable distributions (QCDs) may be made from traditional IRAs, other than SEP-IRAs and SIMPLE plans that are actively receiving employer contributions. QCDs can theoretically be made from Roth IRAs, but the requirement that the distribution must come from funds that otherwise would be included in the IRA owner's gross income (if distributed to him or her) precludes most Roth IRAs. QCDs may not be made from 403(b) or 401(k) plans or any other type of retirement plan other than IRAs.

Who: Only individuals who are over age 70 1/2 may make QCDs. The test is based on the actual age-70 1/2 "birthday." Donald Trump's 70th birthday was June 14, 2016. He can make charitable transfers from his IRA on or after Dec. 14, 2016--but not before. A beneficiary older than 70 1/2 can make a QCD from an inherited IRA.

Which charities: The transfer must be made directly to a qualifying charity. Any public operating charity will qualify, but the following can NOT be recipients of QCDs: Donor-advised funds, split-interest charitable trusts (such as charitable remainder trusts), and supporting organizations.

How much: A QCD can be for any amount, subject to the annual limit of $100,000 per IRA owner per year. So, an over-age-70-1/2 IRA owner can make QCDs of $1, $10, $100, or any amount she chooses, to as many or as few charities as she wants, up to the annual dollar limit.

The donor can make these transfers from multiple IRAs in the same year, subject to the overall dollar limit of $100,000.

A husband and wife can each make QCDs from their respective IRAs, if both are over age 70 1/2. But spouses cannot use each other's dollar limits; for example, a wife cannot use husband's dollar limit to give $200,000 from her IRA.

Subject to the $100,000 limit, and possibly fees or limits imposed by the IRA provider (I haven't heard of any such limits to date), the IRA owner can make as many QCDs as he wants, whenever he wants to make them, during the year. Because of the paperwork involved, it would be smart not to wait until the very end of the year, however.

Natalie Choate practices law in Boston with Nutter McClennen & Fish LLP, specializing in estate planning for retirement benefits. Her book, Life and Death Planning for Retirement Benefits, is a leading resource for professionals in this field.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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