The qualified charitable distribution (QCD) option emerged after Hurricane Katrina in 2005 and was made permanent by Congress in 2015.
If you are at least 70.5 years old, have an IRA and plan to donate to a charity this year, another consideration may be to make a QCD from your Individual Retirement Account (IRA). This can satisfy charitable goals and allows funds to be withdrawn from an IRA without any tax consequences. A QCD can also be appealing because it can be used to satisfy your required minimum distribution (RMD).
Generally speaking, QCD’s may be useful in situations where the charitable deduction could not be fully utilized – either because your itemized deductions (including the charitable contributions) fall below the threshold of the the standard deduction in the first place, or because your charitable contribution is so large that exceeds the 30% or 50% of AGI contribution limits and must be carried forward. QCD’s may also be useful to high income individuals who are subject to phaseouts on their itemized deductions.
QCD’s may be most appealing if you have few other deductions or if you are already close to your charitable deduction limits. Because the tax-free QDC is never reported as a deduction, it is not counted against the charitable limits.
Alternatively, if you are subject to a RMD and have a desire to contribute to charity, you could take the RMD proceeds as a taxable distribution and use them to make a charitable donation. Your IRA distribution would then be reported as income, but the subsequent charitable contribution using the proceeds from the RMD would generally offset the tax consequences – to the extent that the limits and phaseouts allow it.
Finally, note that QCD’s are limited to $100,000 in 2017, so if your RMD is larger than that, you might still need to take a conventional distribution in addition to your QCD.