The Qualified Charitable Distribution (“QCD”) from traditional IRAs is not new; it has been around since 2007. The Tax Act of 2006 ushered in this unique provision that allows distributions from traditional IRAs made directly to charities to escape the normal income tax on money taken out of a retirement plan. The donor is allowed to exclude the amount of the QCD from taxable income, but the offset is that there is no charitable income tax deduction for the gift being made to charity.

There has been confusion about the QCD ever since 2007, because it deals with aspects of IRAs that many are unfamiliar with. The biggest area of confusion has been distinguishing the RMD for a traditional IRA from a QCD. They are not the same thing. Not at all. And it is dangerous to confuse the two.

Collecting the funds, when a donor makes a charity the beneficiary of an IRA, can be challenging. There has been much discussion about IRA administrators who, with a few exceptions, require charitable beneficiaries to establish an IRA account to receive a distribution from the donor’s IRA, 401(k), 403(b), or other qualified plan.

In this article, Bill Laskin, PG Calc's Vice President of Product Management, explores the tax implications of the SECURE Act for IRAs and how that could impact gift planning.

IRS statistics indicate traditional IRAs held nearly $8 trillion in assets at the end of 2018, the latest year for which data is available. That is a huge potential source of charitable gifts. Any change that might increase the likelihood of gifts of IRA assets is enough to get gift planners excited, and rightly so.

The SECURE Act that was signed into law at the end of 2019 contained several provisions that drew the attention of gift planners. One provision of the Act was elimination of the so-called “stretch” IRA for most non-spouses. 

The SECURE Act significantly limited who can stretch payments from an inherited IRA over their life expectancy. Gift planners recognized that for charitably minded IRA owners, the elimination of the “stretch” IRA created an additional incentive to designate what is left in their IRA to one or more charities and use other funds to benefit their heirs.