Tax benefits of using Individual Retirement Account (“IRA”) for charitable contributions

Taxpayers who are age 70½ and older may direct IRA funds to charities through Qualified Charitable Distributions (QCDs).  The portion of an annual IRA distribution that is a QCD is excluded from income, providing many tax benefits such as:

  • The charitable contribution tax benefit is achieved without itemizing deductions.
  • The requirement to take minimum distributions after age 70½ from your IRA may be achieved through a QCD.
  • The use of a QCD results in lower adjusted gross income, which may result in lower taxable Social Security benefits, and other tax benefits.

Example: An individual who is age 75 contributes $5,000 annually to charity, but gets no tax benefit because she doesn’t itemize deductions.  If she designates $5,000 as a QCD from her IRA, she is able to exclude the amount from gross income and have tax savings.  The IRA distribution is made directly to the charitable organization through the brokerage account or fund that hold the IRA funds.

A QCD may be made from any type of IRA for a taxpayer who has attained age 70 ½, and up to $100,000 in total QCDs may be excluded from gross income in a tax year.  Consult your tax advisor for additional information about the use of a QCD to make charitable contributions with pretax dollars.