Congress has allowed the $100,000 exclusion for qualified charitable distributions (“QCD” also known as the charitable IRA rollover) made from certain individual retirement accounts to expire for 2014.
After an IRA account owner reaches age 70 ½, the owner must begin taking required minimum distributions (RMDs) annually which are intended to deplete the IRA over the account owner’s life expectancy.
The QCD is a method of donating an IRA distribution (including a RMD) directly to a charity in lieu of taking the distribution and then transferring the distribution to the charity. The QCD option often provides significant income tax benefits to the IRA owner. When executed correctly, an IRA distribution of up to $100,000 to a charity is excluded from income on the owner’s tax return and a charitable deduction on Schedule A of the return is not required. This can be beneficial to the IRA owner for multiple reasons. First, excluding the distribution from income creates a reduction to adjusted gross income which often decreases the amount of social security subject to income tax. In addition, the QCD provides a tax savings that would otherwise be unavailable for a taxpayer that does not typically itemize deductions.
The QCD option has been scheduled to expire in the past only to be renewed by Congress. It is unclear if a retroactive renewal will occur for 2014.
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