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IRA charitable transfers can be tax-free for those over 70 1/2

Posted on December 12, 2023

Did you know that individual retirement arrangement (IRA) owners age 70½ or over can transfer up to $100,000 to charity, tax-free each year?

These transfers, known as qualified charitable distributions or QCDs, offer eligible older Americans a great way to easily give to charity before the end of the year.

Even better, for those 73+ years old, QCDs count toward the IRA owner’s required minimum distribution (RMD) for the year.

Here’s how to set up a QCD:

Importantly, any IRA owner who wishes to make a QCD for 2023 should contact their IRA trustee soon so there will be time to complete the transaction before the end of the year.

  • Normally, distributions from a traditional IRA are taxable when received. But with a QCD, these distributions become tax-free as long as they’re paid directly from the IRA to an eligible charitable organization.
  • QCDs must be made directly by the trustee of the IRA to the charity. (An IRA distribution, such as an electronic payment made directly to the IRA owner or a check, does not count as a QCD.)
  • Each year, IRA ownersage 70½ or over when the distribution is made can exclude up to $100,000 from their gross income from these QCDs.
  • For a married couple, if both spouses areage 70½ or over when the distributions are made and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year.
  • The QCD option is available regardless of whether an eligible IRA owner itemizes deductions onSchedule A.
  • Transferred amounts are not taxable, and no deduction is available for the transfer.

How to correctly report these deductions

QCD charitable contributions must be reported on each 2023 federal income tax return filed during the 2024 tax filing season.

Early in 2024, the IRA owner will receive Form 1099-R from their IRA trustee that shows any IRA distributions made during calendar year 2023, including both regular distributions and QCDs. The total distribution is shown in Box 1 on that form.

Like other IRA distributions, QCDs are reported on Line 4 of Form 1040 or Form 1040-SR. If part or all of an IRA distribution is a QCD, enter the total amount of the IRA distribution on Line 4a. This is the amount shown in Box 1 on Form 1099-R.

Your Teipen CPA Group associate can help make sure this distribution is properly noted – but you will need a written acknowledgement from the charitable organization before filing your return. (For details, see the Acknowledgement section in Publication 526, Charitable Contributions.)