UNLOCKING THE POWER OF QUALIFIED CHARITABLECONTRIBUTIONS: A COMMUNITY FOUNDATION’S PERSPECTIVE

Dr. Michelle Foster
President and CEO

As the President and CEO of the Greater Kanawha Valley Foundation, I am deeply aware of the transformative power of philanthropy in our communities. Among the various tools available to donors, Qualified Charitable Distributions (QCDs) stand out as a highly effective way to support charitable causes while providing significant tax benefits. This article aims to shed light on QCDs, their benefits, and how donors can leverage this powerful tool to make a lasting impact in their communities. By making a QCD, donors contribute to the betterment of their community and benefit themselves financially, which is a win-win situation.

What is a Qualified Charitable Distribution (QCD)?
A Qualified Charitable Distribution (QCD) is a unique and straightforward mechanism that allows individuals aged 70½ or older to donate up to $105,000 per year (up from $100,000 in 2023) to charity directly from their Individual Retirement Accounts (IRA) without counting the distribution as taxable income. QCDs can also count towards the donor’s required minimum distribution (RMD) for the year, providing a double benefit.

Key Requirements for QCDs:

  1. Age Requirement: The donor must be at least 70½ years old at the time of the
    distribution.
  2. Eligible Accounts: To take advantage of QCDs, you must have a traditional IRA or an
    inherited IRA. Please note that employer-sponsored retirement plans, such as 401(k)s or
    403(b)s, are not eligible for QCDs.
  3. Annual Limit: The maximum annual amount to qualify for a QCD is currently $105,000
    per individual. For married couples, each spouse can make a QCD of up to $105,000
    from their respective IRAs. According to the IRS, that number adjusts annually for
    inflation starting in 2024, when the QCD limit jumped to $105,000.
  4. Qualified Charities: The distribution must be made to a qualified 501(c)(3)
    organization, like the Greater Kanawha Valley Foundation. Contributions to donor-advised
    funds, private foundations, and certain supporting organizations do not qualify.
  5. Direct Transfer: The process of making a QCD is straightforward. The funds must be
    transferred directly from the IRA custodian to the charity. It’s important to note that if
    the funds are distributed to the donor first and then given to the charity, the distribution
    will not qualify as a QCD. By understanding and following this process, donors can
    confidently make their QCDs, knowing they maximize their philanthropic impact and
    potential tax benefits.

Benefits of QCDs

  1. Tax Efficiency
    QCDs offer a unique tax advantage by excluding the amount donated from the donor’s taxable income. This exclusion can be particularly beneficial for individuals who do not itemize deductions, allowing them to effectively receive a charitable deduction without itemizing.
  2. Satisfying RMDs
    For individuals aged 73 and older, QCDs can satisfy all or part of their RMDs. This can be a strategic way to reduce taxable income, especially for those who do not need the RMD for living expenses.
  3. Managing AGI
    Keeping the QCD amount out of the donor’s adjusted gross income (AGI) can help mitigate the impact of AGI-related phase-outs and limitations on other tax benefits, such as the deduction for medical expenses or the taxation of Social Security benefits.

How Community Foundations like TGKVF Can Assist

As a community foundation, we play a pivotal role in helping donors maximize the
impact of their charitable giving. Here’s how we can assist:

  1. Education and Awareness: We provide resources to educate donors about the benefits of QCDs and how they can be incorporated into their philanthropic strategies.
  2. Customized Giving Solutions: We work closely with donors to understand their charitable goals and provide personalized solutions. This includes identifying local causes and organizations that align with their passions.
  3. Streamlined Process: We facilitate the QCD process, ensuring that the transfer of funds is handled smoothly and complies with IRS regulations. Our team works directly with IRA custodians to manage the transfer.
  4. Legacy Planning: We help donors incorporate QCDs into their broader estate planning strategies, ensuring their charitable legacy continues to benefit the community for future generations.

Challenges associated with QCDs

While QCDs offer benefits, the strategy is “more cumbersome” for tax reporting and administration, explained CFP Kevin Brady, a vice president at New York-based Wealthspire Advisors.

Typically, QCDs aren’t separated on Form 1099-R, which reports retirement plan distributions to the IRS. For instance, if you withdraw $50,000 from an IRA and $25,000 is for a QCD, the form will still show $50,000 in distributions in Box 1, with no special code for QCDs, even though only $25,000 is taxable income. Keep detailed records of QCDs and other IRA distributions to avoid issues and highlight them for your preparer at tax time.

Like other IRA distributions, QCDs are reported on Line 4 of Form 1040 or Form 1040- SR. If part or all of an IRA distribution is a QCD, enter the total amount of the IRA distribution on Line 4a. This is the amount shown in Box 1 on Form 1099-R. Then, if the full amount of the distribution is a QCD, enter 0 on Line 4b. If only part of it is a QCD, the remaining taxable portion is normally entered on Line 4b.

Additionally, each QCD requires authorization with a signature from the donor, necessitating advance planning. Like other charitable donations, you must obtain a written acknowledgment of the gift from the organization before filing your tax return. In general, the acknowledgment must state the date and amount of the contribution and indicate whether the donor received anything of value in return.

In conclusion, QCDs are powerful tools that can significantly enhance a donor’s philanthropic impact while providing substantial tax benefits. As a community foundation, we are dedicated to supporting our donors in making informed and strategic decisions about their charitable giving. By leveraging QCDs, donors can achieve their financial goals, support the causes they care about, and make a lasting difference in our community. Together, we can unlock the full potential of charitable giving and create a brighter future for all.

For more information, feel free to reach out to me at mfoster@tgkvf.org or Kristin Mounts, Chief Financial Officer, at kmounts@tgkvf.org.

QCDs are powerful tools that can significantly enhance a donor’s philanthropic impact.

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