Over 70 1/2? Uncle Sam Has A Gift For You!

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If you are over age 70 1/2, you probably have more bumps, bruises, medical issues than you do gifts.  However, our dear Uncle Sam has chosen to show you a little love (but not too much though)!

seniors-laughing

It turns out buried in the recent Fiscal Clift legislation (officially known as The American Taxpayer Relief Act of 2012 (ATRA)) there was a nugget just for you. (see our Facebook page for a summary of this legislationWhile you are there, do us a favor and “Like” us on Facebook.

So what is it?

The ATRA extended for 2012 and 2013 the popular qualified charitable distribution (QCD) provisions for donations directly from your IRA.

So I see I am still getting a “what”?

So let me explain.

According to the IRS, “a QCD is an otherwise taxable distribution from your IRA (other than a SEP or SIMPLE IRA) owned by an individual 70 1/2 or over that is paid directly from the IRA to a qualified charity.  An IRA owner can exclude from gross income up to $100,000 of QCD made for a year, and a QCD can be used to satisfy any IRA required minimum distributions (RMDs) for the year.  Also the amount of the QCD, excluded from gross income, is not taken into account in determining any deduction for charitable contributions.”

So let’s outline how this might apply.

2012 QCD (Post Legislation) in 2013

I know this one is a tough one to grasp, but even though the ATRA was not passed until the eleventh hour in early 2013 (and then named a 2012 tax act), you can still claim a QCD in 2012.  In typical Washington simplified form, here is how it works:

The first way is that you were somehow clairvoyant and paid a qualified charity from your IRA in 2012.  How you would have done this and what IRA custodian would have allowed this is beyond me, but I guess anything is possible!  Or maybe this is just for all the Washington politicians over age 70 1/2 who were tipped off in 2012 that this legislation would be extended!  I just don’t know!

Secondly, the one that may apply to some of you, is if you made a RMD distribution in December 2012 to yourself, the IRS is going to allow you to use this as a QCD.  Here is the catch:  you must make a cash contribution of some or all of that RMD to a qualified charity in January 2013.  Obviously the amount of this QCD excluded from 2012 income is limited to the amount of the actual cash contribution made in January 2013.

My recommendation is you keep really good documentation on this as you are sure to get documentation from your IRA custodian that differs from the intent of this allowable act.

As for our clients who qualify for this QCD, we made their RMDs in late November and missed this option by 3-4 days.  Thanks Congress!   Note to self….get a new crystal ball!

QCDs in 2013

So how about 2013?

Well the QCD works like it has historically.  That is you ask or direct your IRA custodian to make distributions to qualified charities directly from your IRA up to the $100,000 limitation.  You then can exclude the QCD from income, but also must forgo the deduction on your Schedule A of your Form 1040 tax return.

Who Should Consider a QCD?

Easy!

If you are over age 70 1/2 and cannot find enough itemized deductions to itemize on your tax return and you have been looking for a way to help your favorite charity, this is for you.

Alternatively, if you are already charitably inclined but your income in retirement has prevented you from taking all of your past charitable deductions (i.e. you have a charitable carry forward), you may consider doing this as a way to use those past carry forwards while still supporting your favorite charities in 2013.

Now the disclaimer: please remember to consult with your own personal CPA before making a QCD.  More information can on QCDs can be found on the IRS Website.

So what are your thoughts on this tax break for Seniors?  Would you use it if it was available for us younger folks?  Let us know by leaving a comment below.

About The Author Jeff Diercks

Jeff Diercks has written 231 post in this blog.

Mr. Diercks is the Founder and Managing Director of InTrust Advisors.

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