Congress finally got around to passing tax legislation for 2012 with the American Taxpayer Relief Act of 2012. It revived qualified charitable distributions (QCDs) for two years – retroactively for 2012 and also for 2013. They had to tweak the rules, though, for 2012 since they did not renew the provision until 2013.
What major tweak is in store? You only have until January 31, 2013 to do a QCD transaction for 2012. Here are the special rules for 2012.
The extension of the QCD provision is effective for transactions that occurred after December 31, 2011. If you took a chance on Congress extending the provision and did a qualifying QCD at any time in 2012 (as we suggested as a possible strategy several times in this space), your move paid off. You now have a valid QCD transaction.
If you waited for Congress, but ended up taking your 2012 required minimum distribution (RMD) in December to avoid the 50% penalty on a missed RMD, all is not lost. One of the “special rules” allows a distribution made to an IRA owner in December to be treated as a QCD when all or part of the distribution is transferred “in cash” to a qualifying charity in January, 2013.
Another special rule says that a QCD distribution done in January, 2013 “shall be deemed to have been made on December 31, 2012.” This makes it sound as though you cannot do a QCD in January for 2013.
The section of the law regarding the special rules says that these transactions can be done “at such time and in such manner as prescribed by the Secretary of the Treasury.” This means that IRS should be providing us with some guidance on these rules. Since the rules are only in effect for the month of January, hopefully this guidance will be issued quickly.
A quick review of the general rules for QCDs follows.
- Only applies to IRA owners or IRA beneficiaries age 70½ and over and is capped at $100,000 per person, per year
- Only applies to direct transfers of IRA funds to charities (with the one exception noted above) and not gifts made to grant making foundations, donor advised funds or charitable gift annuities
- No split interest gifts of any type will qualify
- Applies to IRAs, Roth IRAs and INACTIVE SEP and SIMPLE IRAs. It does NOT apply to distributions from any employer plans
- The charitable donation from an IRA will satisfy a required minimum distribution, but the IRA distribution is not includable in income
- No deduction can be taken for the charitable contribution
- The contribution to the charity would have had to be entirely deductible if it were not made from an IRA. There can be no benefit back to the taxpayer.
- The charitable substantiation requirements apply
- QCDs apply only to taxable amounts. This is an exception to the pro-rata rule. Only taxable amounts in a Roth IRA will qualify.
- QCDs have been extended for 2012
- Special rules apply to allow taxpayers to make QCDs for 2012 through January 31, 2013
- A review of the general QCD rules