2010 tax law changes offer expanded tax benefits for Special Charitable Contributions for Certain IRA Owners.
Under this provision that is now available through the end of 2011, retiree owner's of an IRA (aged over 70½) are now allowed to directly transfer tax-free, up to $100,000 per year to eligible charities.
This method is known as a "qualified charitable distribution" (QCD), this option is available for distributions from IRAs, regardless of whether the owners itemize their deductions. However, distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible to be treated as a qualified charitable distribution.
For tax-year 2010 only, IRA owners can elect to treat QCDs made during January 2011 as if they occurred in 2010.
To qualify, the funds must be contributed directly by the IRA trustee to an eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. Not all charities would be eligible. Thus, the for example, donor-advised funds and supporting organizations are not eligible recipients.
All QCDs from an IRA to eligible charities are counted in determining whether the owner has met the IRA's required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats QCD amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.