CRS Updates Report on Charitable IRA Distributions

Citation: RS22766

Full Text:

Qualified Charitable Distributions from Individual
Retirement Accounts: A Fact Sheet
John J. Topoleski
Analyst in Income Security

Summary

A provision of the Pension Protection Act of 2006 (P.L. 109-280) allows tax-free distributions from Individual Retirement Accounts (IRAs) for charitable purposes. This fact sheet describes the IRA Qualified Charitable Distribution (QCD) provision. The provision had expired on December 31, 2007; it was extended until December 31, 2009, by H.R. 1424/P.L. 110-343, signed by President George W. Bush on October 3, 2008. In the 111^th Congress, the following bills would extend the provision beyond December 31, 2009: H.R. 4213, H.R. 2435, H.R. 1250, and S. 864. H.R. 4213, the Tax Extenders Act of 2009, would extend the provision until December 31, 2010. This bill passed the House on December 9, 2009. The Senate passed the bill (with amendments) on March 10, 2010.

This fact sheet will be updated as warranted.

Contents

 Qualified Charitable Distributions

 Legislation in the 111^th Congress

      Received Floor Action

      Introduced

Contacts

 Author Contact Information

Qualified Charitable Distributions

Distributions from Individual Retirement Accounts (IRAs) must be included in gross income in the year the distribution occurs, and income taxes must be paid on the taxable portion of the distribution. Section 1201 of the Pension Protection Act of 2006 (P.L. 109-280) allows individuals aged 70 ¹/₂ and older to exclude from gross income distributions from Individual Retirement Accounts (IRAs) if they are made to a qualified charity.¹ This provision for Qualified Charitable Distributions (QCDs) had expired on December 31, 2007. P.L. 110-343 extended this provision until December 31, 2009.

The features of the QCD are

• Contributions must be from traditional or Roth IRAs. QCDs cannot be made from employer-sponsored IRAs (Simplified Employee Pensions (SEP-IRAs) and Savings Incentive Match Plan for Employees (SIMPLE-IRAs), or from defined contribution retirement plans (for example, 401(k) plans or 403(b) plans);
• Individuals must be older than 70 ¹/₂ when the QCD is made;
• Charities must be eligible to receive tax-deductible charitable contributions;
• The maximum QCD is $100,000, although a spouse can also make a $100,000 QCD if the couple files a joint income tax return;
• The $100,000 maximum QCD does not apply to the overall charitable deduction limit. Thus, individuals may make charitable contributions in excess of 50% of adjusted gross income;
• The distribution must be a trustee-to-trustee transfer; that is, a direct transfer from the IRA to the charity; and
• The distribution first comes from taxable funds, then from any nondeductible IRA contributions. Previously, distributions would have been allocated proportionately between deductible and nondeductible contributions.

The QCD allows taxpayers aged 70 ¹/₂ or older to exclude from their gross income IRA distributions that are transferred directly to a charity. Absent the QCD, some taxpayers could achieve the same result by including the IRA distribution in gross income, donating the distribution to a charity, and taking a tax deduction for the donation. However, taxpayers who do not itemize their tax deductions or whose charitable contributions exceed 50% of their gross income would not benefit, as they do from the QCD.

Legislation in the 111^th Congress

As of December 17, 2009, the following legislation has been introduced to extend the QCD provision beyond December 31, 2009.

Received Floor Action

H.R. 4213. Representative Charles Rangel introduced the Tax Extenders Act of 2009 on December 7, 2009. Among other provisions, this bill would extend the QCD provision until December 31, 2010. This bill passed the House on December 9, 2009, by a vote of 241-181. The bill, with amendments unrelated to the QCD provision, passed the Senate on March 10, 2010. The Joint Committee on Taxation estimated that this provision would reduce revenues by $175 million in FY2010 and $187 million in FY2011.²

Introduced

H.R. 2435. Representative Suzanne Kosmas introduced the IRA Charitable Giving Act on May 14, 2009. This bill would extend the QCD provision until December 31, 2010.

H.R. 1250 / S. 864. Representative Earl Pomeroy introduced the Public Good IRA Rollover Act of 2009 on March 2, 2009, and Senator Byron Dorgan introduced an identical bill on April 22, 2009. Among other provisions, the Public Good IRA Rollover Act of 2009 would make the charitable distribution provision permanent.

Author Contact Information

John J. Topoleski
Analyst in Income Security
jtopoleski@crs.loc.gov, 7-2290

¹ See CRS Report RL33703, Summary of the Pension Protection Act of 2006, by Patrick Purcell.

² For further information see JCX-59-09, Estimated Revenue Effects Of H.R. 4213, The "Tax Extenders Act Of 2009," available at http://www.jct.gov/publications.html?func=download&id=3639&chk= f8cdc4ede717b367c134af5d05381074&no_html=1.