It’s back! The American Taxpayer Relief Act of 2012 (ATRA12) reinstated the ability to make a Qualified IRA Charitable Distribution (QCD) … temporarily. The reinstated provision expires December 31, 2013. A QCD allows individuals over age 70½ to directly transfer up to $100,000 from an IRA account to one or more charities. This transfer counts toward the required minimum distribution (RMD) rule for IRA accounts, but it doesn’t add to the taxpayer’s adjusted gross income (AGI). This is important for taxpayers with income over $250,000, because they will lose some of their itemized deductions under ATRA12. It is also important to taxpayers drawing Social Security benefits. Benefits can be taxable based on their AGI.
The ability to make a QCD ended on December 31, 2011. Last January, I advised charitably minded taxpayers age 70 ½ to hold off taking their RMD, to see if Congress would extend this provision. Unfortunately, haggling over the fiscal cliff pushed passage of ATRA12 into 2013. This was too late for taxpayers forced to take their RMD and avoid the stiff penalty for failing to take the correct amount before year end.
Congress provided some special rules for 2012 QCDs in an attempt to address this problem. They realized the deadline had passed for IRA distributions in 2012. ATRA12 includes two special provisions to allow for 2012 gifts after December 31, 2012. First, QCDs made in January 2013 directly to charities from IRA accounts will have the option of being deemed to have been completed on December 31, 2012 or counted in 2013. Note that the 2012 RMD taken in December has to be given to a charity by February 1st, 2013, in order to not be taxed as 2012 income. Second, taxpayers who took RMDs from their IRA accounts in December of 2012 can transfer up to $100,000 of that amount to charities (subject to the rules governing QCDs) and elect to treat it as a direct distribution to charity in 2012. You should consult with your tax planner or financial adviser to see if this makes sense in your situation.