The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act Of 2010,1 extends qualified charitable distributions (QCDs) to 2010 and 2011. QCDs are direct individual retirement account distributions (except from SIMPLE IRAs and simplified employee pensions) to a qualifying charity of up to $100,000 during a tax year. (For married individuals filing a joint return, each spouse may contribute up to $100,000.)
The distributions are excluded from taxable income, and there’s no further charitable income tax deduction. QCDs, which are available to IRA owners and beneficiaries who have attained age 70½, will satisfy required minimum distributions.
The extension of QCDs takes effect as of Jan. 1, 2010, meaning any transaction made during 2010 that meets QCD requirements will be treated as a QCD. And here’s a bonus: IRA owners get an extra month to make QCD elections for 2010. The new law allows IRA owners to treat QCDs completed by Jan. 31, 2011 as having been made on Dec. 31, 2010. The election permits use of the $100,000 limit for 2010 instead of 2011 and will satisfy 2010 RMDs. But be warned: An active election by the taxpayer is required.
Rundown
Here’s a rundown of the rules that were extended.
No contributions may be made to a private (grant-making) foundation, a donor advised fund or an Internal Revenue Code Section 509(a)(3) supporting organization.
To make a charitable IRA transfer, the IRA owner directs the IRA trustee or custodian to issue a check from the IRA made payable to the chosen charity. The charitable transfer won’t qualify if the custodian mistakenly puts IRA money in a non-IRA account as an intermediate step. Alternatively, the IRA trustee or custodian may make a check payable to the charity and deliver it to the IRA owner. If the IRA custodian offers check-writing privileges, the IRA owner may write a check on the IRA to the charity.
Age checks are critical. It’s not enough that the transfer occurs during the year when the IRA owner will turn age 70½. To qualify, the transfer must occur after the date when the IRA owner actually turns age 70½.
For example, Sidney turns 70 on Aug. 4, 2010. He will turn 70½ on Feb. 4, 2011. He may not make a charitable IRA transfer before Feb. 4, 2011.
Be sure to obtain a letter of acknowledgment from the charity.
Endnote
1. H.R. 4853, Section 725.