Life and Death Planning for Retirement Benefits

Chapter 7: Charitable Giving

401

How much? $100,000 per year per IRA owner

The QCD income exclusion is limited to $100,000 per year. § 408(d)(8)(A) . The limit is per IRA owner, not per IRA. “For married individuals filing a joint return, the limit is $100,000 per individual IRA owner.” IRS Notice 2007-7, A-34. So, a husband and wife who are both over age 70½ andwho both have IRAs can each transfer up to $100,000 to charity from their respective IRAs in the same year. But if (for example) wife has an IRA and husband does not, wife cannot “borrow” husband’s limit and give $200,000 from her IRA. The donor does not have to give that much. $100,000 per IRA owner per year is the maximum and there is no minimum (other than what the IRA provider may impose administratively). Example: Jody, age 83, gives $5,000 per year to her church and does not make any other charitable gifts. Since 2006 she has made these annual gifts directly from her IRA as QCDs. Her sister Agatha, age 81, gives $200,000 a year to charity. She makes half her annual gift in the form of a QCD and the rest using appreciated stock held in her taxable account. A QCD can be made to any charity EXCEPT a donor-advised fund ( § 4966(d)(2) ) or a supporting organization ( § 509(a)(3) ). § 408(d)(8)(B)(i) . Also, the QCD must be a contribution that would be 100 percent deductible if paid from the owner’s nonIRA assets, so a split-interest gift will NOT qualify. Thus, QCDs can NOT be made to a charitable remainder trust ( ¶ 7.5.04 ), pooled income fund ( ¶ 7.5.10 ), or charitable gift annuity ( ¶ 7.5.08 ), or in exchange for any consideration. Note however that in determining whether the gift would be 100 percent deductible if made with nonIRA assets the percentage-of-income limits in § 170(b) are ignored. § 408(d)(8)(C) . The gift must meet all other requirements applicable to the income tax charitable deduction under § 170 , such as the substantiation requirement. IRS Notice 2007-7, A-39. The QCD is excluded from the individual’s gross income for all purposes. § 408(d)(8)(A) . Thus it cannot be counted as part of the individual’s gross income for purposes of applying the percentage-of-income limits in § 170(b) with respect to his other charitable gifts. Of course, there is no income tax charitable deduction for the QCD. IRS Notice 2007-7, A-39. The QCD must be a distribution that would otherwise be includible in the donor’s gross income. § 408(d)(8)(B) . Here is the effect of this rule on: Distributions fromRoth IRAs: A qualified distribution froma Roth IRA(see ¶ 5.2.01 cannot be a QCD because a qualifiedRoth IRA distribution is nontaxable. Thus, QCDs could be made from a Roth IRA only if theRoth IRA had not yet met the requirements for a “qualified distribution.” But even then it would normally not be good planning to make a QCD from a Roth IRA; see ¶ 7.6.03 . IRAs where the IRA owner has no after-tax money in any IRA: If the traditional-IRA owner does not have any after-tax money in any of this IRAs, this rule is “no problem” since all distributions from any of his IRAs will consist 100 percent of pretax money (includible in gross income). Income tax aspects; effect on basis Requirements applicable to charity and donation