Qualified Charitable Distributions
What is a QCD?
If you are over the age of 70 ½ and charitably inclined, a QCD (Qualified Charitable Distribution) is a strategy to discuss with your financial professional.
A Qualified Charitable Distribution is a distribution from an IRA that goes directly to a qualified charity. Up to $100,000 per year may be given through a QCD. Other limits may apply if you are still working and contributing to your IRA.
Who is eligible to give using a QCD?
To be eligible to give via a QCD, you must be at least age 70 ½. QCD’s can be given from an IRA including Traditional IRAs, SEP IRAs SIMPLE IRAs, and Inherited IRAs. The distribution must go directly to a qualified 501(c)(3) charity. If the money is distributed to the owner, it is no longer eligible to be a QCD, and will be included as taxable income even if you make a charitable donation after receiving the distribution.
You may do a QCD even if you are not itemizing deductions for the year. You may not do a QCD (which is tax free to the donor) and claim the charitable deduction for the amount donated. No double dipping. If you are in a position where itemized deductions exceed the standard deduction, itemizing may be more beneficial to you than doing a QCD.
What is the benefit?
There are various benefits of doing a QCD. First, the donation is transferred directly from your IRA to the charity without being taxable to you. The distribution is taxable to the charity, in theory. However, since 501(c)(3) charities are tax exempt, it will not burden the charity. By going directly to the charity, your taxable income is reduced which results in a lower tax liability. The tax savings from doing a QCD means more money in your pocket that you can either spend or give additionally to charity.
Second, making a QCD may allow you to reduce other taxes. If you are looking at MAGI (Modified Adjusted Gross Income), it is reduced by the QCD instead of the deduction. This could lower other tax like tax on SS benefits.
Third, if you are over the age of 72 and required to take a Required Minimum Distribution from your IRA, a QCD can fulfill part or all your RMD requirement for the year. This can be a useful strategy if you would like to give to charity and do not need your RMD for income or if you have a more tax-efficient place to get that income such as an investment account or a Roth account.
How to do a QCD
Communicate with your IRA’s custodian to let them know you would like to make a QCD. This request should be in writing and have the specific dollar amount you would like to donate. Request a check payable to the charity but mailed to you. Your financial planner can help you through this process.
At tax time, make sure your tax preparer knows you made a QCD and properly reports it on your Form 1040, so you get the tax benefit.
You may do as many QCDs to as many charities as you would like in a year up to a total of $100,000 donated. If you donate more than your RMD, you may not carry this amount forward to satisfy future RMD requirements.
The above is for informational purposes only and is not to be taken as advice. Please talk to your Fee-only Certified Financial Planning TM Professional before doing a QCD.