A qualified charitable distribution (QCD) is a distribution from an individual retirement account (IRA) to a qualified charity. The donation must be a direct transfer of funds from the IRA custodian to the charity. A QCD can be counted toward satisfying the required minimum distributions (RMD’s) for the year if certain rules are met.
In addition to the benefits of giving to charity, a QCD excludes the amount that is donated from taxable income. Also, QCD’s don’t require that the taxpayer itemize deductions, which due to the changes under the Tax Cuts and Jobs Act means that they can take advantage of the higher standard deduction but still use a QCD for charitable giving. But those that do itemize cannot deduct the QCD as a charitable contribution as it already is excluded from income.
While many IRAs are eligible for QCD’s, there are requirements:
- One must be age 70½ or older to be eligible to make a QCD.
- QCD’s 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 $100,000.00 (indexed starting in 2024). This applies to the sum of QCD’s made to one or more charities in a calendar year.
- For a QCD to count towards the current year’s RMD, the funds must come out of the IRA by the taxpayer’s RMD deadline, generally December 31st.
The charity must be a 501(c)(3) organization that is eligible to receive tax-deductible contributions. Some charities may not qualify for QCD’s, so it is advised to consult a tax professional or the charity itself for its applicability.