Congress Makes “Permanent” the Qualified Charitable Distribution from IRAs

With the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015, Congress once again retroactively reinstated many of the tax extenders that were renewed and then expired at the end of 2014. Michael Kitces does a good job of highlighting the major points here. One major change from previous year’s legislation regarding extenders is that this Act makes most of these provisions permanent, meaning that next year at this time taxpayers won’t be put in limbo waiting to see if Congress will approve them for another year.

Of particular interest to retirees, especially those who have to take RMDs, is the extender concerning qualified charitable distributions from an IRA account. From the article:

“Since 2006, taxpayers who are over age 70 ½ have been permitted to make a “Qualified Charitable Distribution” of up to $100,000 directly from an IRA to a charity. The contribution to the charity is not claimed as a tax deduction, but the distribution from the IRA is not taxed in income in the first place either, making it a “perfect” pre-tax charitable contribution. And the QCD counts towards the taxpayer’s Required Minimum Distribution obligations, which would apply given that he/she must already be over the age of 70 ½. The QCD rules had lapsed at the end of 2014.
The new PATH tax extenders legislation makes the Qualified Charitable Distribution rules permanent, at their existing levels and thresholds (still capped at $100,000 per taxpayer, and still must be over age 70 ½ at the time of the distribution).”

So for the charitably-inclined retiree that doesn’t necessarily need the income that a required minimum distribution forces you to take out, here is a way to reduce your annual taxable income, finally made permanent (or at least until Congress changes its mind).

One thing to note, however: if you already took your RMD for the 2015 tax year there is no way to undo this fact, but you could still make another distribution directly to a qualified charity if you like. Or you could donate your RMD in cash to the qualified charity, increasing your income by the distribution and then taking the charitable contribution deduction on your tax return.