The good folks in Washington have passed a last minute “tax extenders” package which keeps fifty-five tax breaks for individuals and businesses in place for another year. One item that may be actionable before year-end is the reinstatement of the “tax exemption for distributions from individual retirement accounts for charitable purposes,” often referred to as a Qualified Charitable Distribution (QCD). This is only applicable for individuals who are over 70 ½, who want to send up to $100,000 of their required minimum distribution to a public charity (not a donor advised fund) rather than their own checking account. Unfortunately the opportunity won’t apply for those who’ve already processed their RMD without taking this provision into consideration.
Congress has always handled the timing of this provision poorly. They enact it a year at a time and often at the very last minute. How are tax payers expected to deal with this uncertainty, especially since most people would have processed their RMD already? The answer lies in proactive planning, a little wishful thinking, and acting “as if” the law was in place.
This strategy is not for everyone, but If you are at least age 70 1/2, and you are inclined to give to charity, and you don’t want or need the proceeds of your IRA yourself, then you can always direct all or a portion of your RMD to the public charity of your choice. Then, if congress does not renew the law, you get an ordinary charitable deduction as if you wrote a check directly to the charity. If congress does renew the provision, then the portion that went to charity never hits your tax return, which ultimately gets you a very beneficial tax treatment.
So, it may be too late to act on this in 2014 if you have already done your RMD, but if you have yet to make your distribution (the clock is ticking) or if you’ve proactively made a distribution to a charity in anticipation of the law then the extension is very good news.