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IRS Encourages IRA Gifts To Charity
In IR-2023-215, the Internal Revenue Service (IRS) reminded traditional IRA owners who are over 70½ they may make a charitable gift before the end of this year. The IRS refers to an IRA charitable rollover gift as a qualified charitable distribution (QCD). An additional benefit for IRA owners who are age 73 or older is that a QCD may fulfill part or all of the required minimum distribution (RMD) for this year.
It is helpful for traditional IRA owners to understand how to do a QCD, what is required to report a QCD on a tax return and the required information of acknowledgment from the nonprofit.
1. How to Set Up a QCD — A traditional IRA owner may contact his or her IRA trustee to start the process for a QCD. While distributions from a traditional IRA are normally taxable, the QCD payouts will be tax-free as long as they are paid directly to a qualified nonprofit. The QCD is made through a check payable to the charity. An electronic payment or a check made out to the IRA owner does not qualify as a QCD. The owner must be age 70½ or older and the 2023 limit is $100,000. If spouses are both over age 70½ and have separate IRA accounts, then the $100,000 per person limit may allow a couple to distribute up to $200,000 per year to charity. Because the QCDs are not taxable, there will be no charitable deduction.
2. How to Report Your QCD — Your QCD must be reported on your 2023 federal income tax return. You can expect to receive an IRS Form 1099-R from your IRA trustee, with the traditional IRA distribution in Box 1. You must report the IRA distribution on Line 4 of IRS Form 1040. You will enter the total amount of the IRA distribution on line 4a. If the full amount is a QCD, you then enter zero on line 4b. If part of the distribution is a QCD, the taxable portion is normally entered on line 4b. You must enter "QCD" next to line 4. If you have entered zero on line 4b, the entire QCD will not be taxable.
3. Nonprofit’s QCD Acknowledgment — Your QCD is not deductible as a charitable contribution. However, you are required to obtain a written QCD acknowledgment from the nonprofit prior to filing your return. This acknowledgment should state the date and amount of the QCD and indicate that the donor has received "no goods or services in exchange for the gift." You should retain the acknowledgment with your other 2023 tax records.
Editor's Note: Many individuals will fulfill part or all of their RMD this year through a gift to charity from a traditional IRA. It is best to start the gift process no later than early December. Some IRA custodians may take time to process the transfer. If a donor has the right to make distributions from his or her traditional IRA through a checkbook, it will be important to send the check directly to the charity. Please allow sufficient time for the charity to deposit the check and for the financial institution to process the check. This process must be completed by December 31, 2023.
It is helpful for traditional IRA owners to understand how to do a QCD, what is required to report a QCD on a tax return and the required information of acknowledgment from the nonprofit.
1. How to Set Up a QCD — A traditional IRA owner may contact his or her IRA trustee to start the process for a QCD. While distributions from a traditional IRA are normally taxable, the QCD payouts will be tax-free as long as they are paid directly to a qualified nonprofit. The QCD is made through a check payable to the charity. An electronic payment or a check made out to the IRA owner does not qualify as a QCD. The owner must be age 70½ or older and the 2023 limit is $100,000. If spouses are both over age 70½ and have separate IRA accounts, then the $100,000 per person limit may allow a couple to distribute up to $200,000 per year to charity. Because the QCDs are not taxable, there will be no charitable deduction.
2. How to Report Your QCD — Your QCD must be reported on your 2023 federal income tax return. You can expect to receive an IRS Form 1099-R from your IRA trustee, with the traditional IRA distribution in Box 1. You must report the IRA distribution on Line 4 of IRS Form 1040. You will enter the total amount of the IRA distribution on line 4a. If the full amount is a QCD, you then enter zero on line 4b. If part of the distribution is a QCD, the taxable portion is normally entered on line 4b. You must enter "QCD" next to line 4. If you have entered zero on line 4b, the entire QCD will not be taxable.
3. Nonprofit’s QCD Acknowledgment — Your QCD is not deductible as a charitable contribution. However, you are required to obtain a written QCD acknowledgment from the nonprofit prior to filing your return. This acknowledgment should state the date and amount of the QCD and indicate that the donor has received "no goods or services in exchange for the gift." You should retain the acknowledgment with your other 2023 tax records.
Editor's Note: Many individuals will fulfill part or all of their RMD this year through a gift to charity from a traditional IRA. It is best to start the gift process no later than early December. Some IRA custodians may take time to process the transfer. If a donor has the right to make distributions from his or her traditional IRA through a checkbook, it will be important to send the check directly to the charity. Please allow sufficient time for the charity to deposit the check and for the financial institution to process the check. This process must be completed by December 31, 2023.
Published November 17, 2023
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