A qualified charitable distribution (QCD) can be a very effective and tax-efficient way to donate to your favorite charity from your IRA. A QCD is a direct transfer of funds from your IRA custodian payable to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year so long as these rules are met:
- You must be 70 ½ or older to be eligible to make a QCD.
- QCDs are limited to the amount that would otherwise be taxed as ordinary income. This excludes non-deductible contributions.
- The maximum annual amount that can qualify for a QCD is $100,000 in 2023 (this value will be indexed annually for inflation thereafter). This applies to the sum of QCDs made to one or more charities in a calendar year (if, however, you file taxes jointly, your spouse can also make a QCD from his or her own IRA within the same tax year for up to the limit).
- For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
- Contributing to an IRA may result in a reduction of the QCD amount you can deduct (the aggregate amount of deductible IRA contributions you make to your IRA after you turn 70 ½ will reduce the amount of the QCD that isn’t includible in your gross income).
Have you recently found out you’re eligible to make a QCD from your IRA?
In addition to giving to your favorite charity, carrying out a QCD can include these benefits:
- Satisfying your required minimum distribution obligation for the year.
- Not having to itemize your tax deductions.
- Excluding the amount donated from taxable income (which can reduce the impact of certain tax credits and deductions, like Social Security and Medicare).
Does your charity qualify?
The charity must be a 501(c)(3) organization eligible to receive tax-deductible contributions. Charities that don’t qualify for QCDs include private foundations, supporting organizations (i.e., charities carrying out exempt purposes by supporting other exempt organizations) and donor-advised funds, which public charities manage on behalf of organizations, families or individuals.
Not sure where to start?
If you’re eligible, there’s a procedure to follow to ensure your QCD is processed correctly. Here’s the typical step-by-step process for making a QCD.
- Communicate with your IRA’s custodian (where your IRA is held) that you’re interested in making a QCD.
- Make the request for a QCD in writing.
- Specify the dollar amount you wish to contribute to your individual charity.
- Request the check be made payable to the charity and mailed to you or the the charity.
- Forward the check to the charity and request a receipt for your records.
- Maintain the receipt and records in your tax file.
- Report the QCD amount on your 1040 federal tax return.
- Enter the total amount on line 4a of your 1040 federal tax return.
If you have questions on whether your IRA or charity meets the eligibility requirements for a QCD, please contact your wealth manager or request a meeting.
