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Making the Most of Your IRA: Qualified Charitable Distributions - QCDs Thumbnail

Making the Most of Your IRA: Qualified Charitable Distributions - QCDs

Estate Planning Retirement Planning Tax Planning

If you're 70½ or older and have a traditional IRA, there's a savvy way to support your favorite charities while reaping some tax benefits. It’s called a Qualified Charitable Distribution (QCD).

How Much Can You Give Directly to Charity via a QCD?

In 2024, you can transfer up to $105,000 directly from your IRA to a qualified charity. If you have multiple IRAs, this limit applies per individual, not per account. Thanks to inflation indexing, this amount will increase a bit each year. If both you and your spouse have IRAs, each of you can contribute up to $105,000.

What Are the Tax Perks of QCDs?

QCDs offer three key tax advantages:

  1. No Tax on the Distribution: The amount you transfer directly to charity through a QCD isn’t taxable to you.
  2. Lower Adjusted Gross Income (AGI): These distributions don’t count as part of your AGI, which can help you avoid surcharges on your 2026 Medicare premiums. This can be especially beneficial if you take the standard deduction and don’t itemize.
  3. Satisfy Your Required Minimum Distributions (RMDs): QCDs count toward your annual RMDs, but make sure to complete the QCD before taking your full RMD for the year.

Important Points to Remember Regarding QCDs

  • Direct Transfers Only: For a donation to qualify as a QCD, the money must go directly from your IRA to the charity. Most IRA custodians will have a form for you to fill out to request this charitable payout. The custodian will either send the check directly to the charity or to you, made out to the charity. Some clients have a checkbook associated with their IRA where they can write checks directly.  Always get a receipt for your records.
  • Eligible Charities: Generally, QCDs must go to a 501(c)(3) organization. However, the SECURE ACT 2.0 law allows a one-time QCD of up to $53,000 to fund a charitable gift annuity, a charitable remainder unitrust (CRUT), or a charitable remainder annuity trust (CRAT). 
  • Must be 70½ on day of Gift: You must be at least 70½ on the date of the QCD.  For example, if you turn 70.5 on August 1st, you must wait until the day after or later that year to make the gift.
  • No Double Dipping: You can’t also deduct the QCD as a charitable contribution on Schedule A of your tax return.
  • Tell Tax Preparer of Gifts: We will know that you made a gift directly from your IRA to a qualified charity, but the 1099 you receive from Schwab will not delineate what is a gift vs. what is not a gift.  Therefore, be sure to tell them that all or a portion of the distribution outlined on Form 1099 is to charity.

QCDs are a fantastic way to make your charitable giving more tax-efficient, especially if you're looking to lower your AGI or meet your RMD requirements. If you have any questions about how to set up a QCD or want to explore if it's the right move for you, please reach out. I'm here to help you navigate these opportunities and maximize your charitable giving and tax strategies.