The changes enacted under the Tax Cuts and Jobs Act of 2017 have made qualified charitable distributions (QCD) from individual retirement accounts (IRAs) particularly attractive to taxpayers.

A QCD is a direct transfer from an IRA to an eligible charity. IRA owners must be at least age 70 ½ to make a QCD. Even if they do not want or need the money, IRA owners must begin taking required minimum distributions (RMDs) from their IRAs when they reach age 70 ½.

QCDs are attractive because they count towards the IRA owner's RMD for the year.

In general, charitable contributions may or may not result in a tax benefit to the donor, and donors must itemize their deductions in order to receive a tax benefit from their charitable contributions. However, with QCDs, an IRA owner benefits from making a charitable contribution that bypasses his or her taxable income altogether. An eligible IRA owner may avoid paying income tax on up to $100,000 per year of QCDs whether he itemizes or claims the standard deduction.

In order to illustrate the income tax benefits of QCDs, consider the following:

Mr. and Mrs. Smith are married and file a joint tax return. In 2019, the Smiths received $60,000 of combined Social Security, $5,000 of qualified dividends, and have $40,000 of RMDs. The Smiths typically give $10,000 per year to their church. In 2019, the Smiths make their $10,000 charitable gift as a QCD to their church and pay $3,000 in property taxes on their home. By making a QCD to their church, the Smiths save $2,220 in 2019 income taxes as indicated below.

This example shows an income tax savings of over $2,000 after utilizing the QCD method for making a charitable contribution.

*Calculated in accordance with rules enacted under the Omnibus Budget Reconciliation Act of 1993.

**Calculated using current income tax tables.