It is that time of year when many people start to think about their charitable giving. This probably explains why I have received so many recent questions about the status of the Qualified IRA Charitable Distribution (QCD) rules that have been such a source of confusion over the last several years. You may remember this as the income tax provision that in past years has allowed a person over the age of 70-1/2 to make direct charitable gifts from their IRA without having the distribution appear as taxable income on their income tax return. This can provide significant income tax advantages for certain individuals.
Historically, QCDs have expired annually (or bi-annually) and often have not been extended until late in the next year, long after most people have executed their charitable giving. For many, this has resulted in higher than necessary income taxes and potentially higher Medicare premiums.
Unfortunately, we approach the end of this year with no more certainty about QCDs than we have had in previous years. The provisions have not been extended, even though the charitable lobbying continues. A bill has been introduced in the Senate designed to extend QCDs along with several other expired tax provisions for 2015 and 2016. I have read that the House of Representatives is considering their own bill to extend QCDs as well. However nothing has been passed and with the recent turmoil in the House, we are left to wonder, once again, if anything will happen before the end of the year.
Given the above, what is a person to do if they wish to make a direct gift to charity from their IRA? The best approach may be to wait as long as possible to see if we get some clarification on the issue. Some have chosen to go ahead and make direct charitable contributions from their IRA and hope any extension includes the ability to qualify gifts made throughout the year. Still others have decided not fight the system and have made their charitable gifts as ordinary tax deductible contributions. The right path for each person will depend on their individual circumstances and patience!
I wish we could provide more clarity on this important issue, but I can only say we will be watching it closely and will get the word out if that clarity develops. In the meantime, please feel free to call us if you need assistance with this, or any other wealth management question you may encounter.