As part of the “fiscal cliff” tax compromise legislation passed on January 1, Congress reinstated taxpayers’ ability to take required annual distributions from their IRAs and contribute those withdrawals directly to charitable organizations, treating them as tax-free distributions. It’s a convenient way to satisfy IRA distribution requirements, support charitable causes, and receive a tax break all at the same time.

First, the basics of required minimum distributions (RMDs): If you’re age 70½ or older, you generally must withdraw a minimum amount each year from your traditional IRAs (Roth IRAs are excluded) and employer-sponsored retirement plans. Failure to take your RMD by year-end could result in a stiff IRS penalty-50% of the amount you should have withdrawn.

Under the renewed QCD rule, beginning at age 70½, you can have all or part of your distribution made directly from your IRA to a qualified charity (up to $100,000 per taxpayer, per year). Unlike conventional RMDs, QCDs aren’t subject to ordinary federal income taxes.

For example, suppose that in 2013 you are over age 70½ and you’d like to make a contribution to a local charitable organization. You may have your 2013 RMD made payable directly to the charity (provided it meets the IRS definition of a qualified charity) and then designate it as a qualified charitable distribution on your tax return. The qualified distribution will not be treated as taxable income by the IRS.