The Tax Increase Prevention Act of 2014 extended the ability of certain IRA owners to make qualified charitable distributions (QCDs) for 2014.
A QCD is a distribution to a public charity (other than a donor advised fund) from an IRA. Only IRA owners over age 70½ can make QCDs. The limit on QCDs for 2014 is $100,000.
A QCD counts toward an individual’s required IRA minimum distribution. A QCD is not included in income, nor is there any charitable contribution deduction for a QCD.
A QCD can create income tax savings. An IRA owner who takes a distribution and makes a charitable contribution may not get the benefit of sheltering the entire contribution from income tax. This could occur if (i) the additional income reduces other deductions or credits based on income, (ii) for state income tax purposes, if the state recognizes QCD treatment but does not allow a deduction (or a full deduction) for charitable contributions, (iii) the IRA owner does not itemize deductions, or (iv) the IRA owner’s charitable contributions would exceed the charitable contribution limitation. The QCD gives you, in effect, a full deduction.
On the other hand, contributing appreciated securities to charity may provide a greater income tax benefit than a QCD, inasmuch as the appreciation can avoid income taxation.
Unlike in 2012, if an IRA owner has already taken her required minimum distribution for 2014, she cannot roll it back into the IRA so as to make a QCD that will count toward the required distribution.
If you wish to make a QCD from your IRA this year, you should contact your custodian promptly, as custodians are busy at year-end processing required minimum distributions. Similarly, time is running short for IRA owners who have not yet taken their required minimum distributions for 2014.
IRA owners should note that the extension for QCDs is only for 2014. While there have been proposals to make QCDs permanent, they have not yet been enacted. Until then, if the custodian so permits, you can direct that amounts be distributed directly to charity from your IRA, though the distribution may be taxed to you if there is no extension for the year of the distribution. If QCDs are extended or made permanent, these distributions may then qualify as QCDs.