Patrons who are over age 70 ½ and have Traditional IRA accounts must take Required Minimum Distributions (RMD) in 2016 and subsequent years. These RMD’s are subject to Federal taxes and are taxable in many states.
You can avoid those taxes by making a Qualified Charitable Distribution (QCD). Congress made permanent the provision to exclude QCD’s from taxation in December, 2015. QCD’s allows traditional IRA owners over 70 ½ to give funds directly to a 501 (c) (3) charity without having to include the QCD in the taxpayers Adjusted Gross Income.
To qualify as a QCD, the distribution must go directly from your IRA custodian to the charity (eg. the Patrons of the Arts in the Vatican Museums, Washington, DC Chapter). Once the transfer is completed, the charity needs to acknowledge the gift for the taxpayer’s records.
The taxpayer reports the Gross amount of the distribution on line 15a of Form 1040, but carries over only the taxable amount to line 15b. For example, if the RMD is $15,000, but the taxpayer executed a QCD for $10,000, then line 15a would show $15,000 Gross distribution, while line 15b would show $5,000 of taxable income. (If the entire $15,000 went to the charity, the taxable amount on line 15b will be zero).
While most people will want to limit their QCD’s to the amount of their RMD’s, they can donate up to $100,000 per year as a QCD. So a husband and wife each with their own IRA accounts could make QCD’s of up to $100,000 each for a total of $200,000.
In order to qualify for a 2016 QCD, the QCD must be completed by December 31, 2016.
Patrons who do not itemize deductions can make QCD’s and avoid having to include the RMD income in their taxable income.
Other advantages of lowering your Adjusted Gross Income are that it can help reduce the taxable amount of Social Security benefits, and it can reduce the amount of Medicare Part B premiums payable in future years.
Consult with your tax accountant if this might be something you wish to consider to help support the Patrons of the Arts in the Vatican Museums.