If philanthropy is one of your financial goals, it’s important to consider how, when, and what to give. For many individuals, a Qualified Charitable Distribution (QCD) from an IRA can be a highly effective, tax-efficient way to support favorite charities.
What Is a QCD?
A QCD allows certain IRA owners to make contributions directly from their IRA to a publiccharity, up to $100,000 per year, and have it count toward their required minimum distributions (RMDs).
The benefit is straightforward: the funds go directly to the charity, are excluded from your taxable income, and satisfy your RMD requirements, all without needing to itemize deductions.
Who Can Use a QCD?
- Must be at least age 70½ (unchanged since the SECURE Act).
- Applies only to IRAs. Not 401(k)s or other qualified accounts.
- Can only be made to eligible public charities, not private foundations, donor-advised funds, or charitable trusts.
Even better, with the SECURE Act and the SECURE 2.0 updates, you can now contribute to your IRA and make a QCD in the same year, but any IRA contribution will reduce the amount available for a QCD.
Why Consider a QCD?
Many retirees cover their income needs with Social Security, pensions, or other investments. For these individuals, RMDs from IRAs may create unnecessary taxable income. A QCD allows you to:
- Satisfy your RMD without increasing taxable income
- Avoid itemizing deductions if you take the standard deduction
- Circumvent AGI limits that can restrict charitable deductions
- Reduce taxable income, which can help with Medicare premiums or taxation of Social Security benefits
In short, a QCD can maximize your charitable impact while minimizing your tax burden.
Other Charitable Giving Strategies
QCDs are not the only way to give efficiently:
- IRA withdrawals + itemized deduction: You could withdraw funds and then donate, but you may run into AGI caps or need to itemize.
- Donate appreciated securities: Give stock or mutual funds to a charity, potentially avoiding capital gains tax.
- Name charities as beneficiaries: IRAs, annuities, or life insurance policies can provide future gifts.
- Charitable trusts or donor-advised funds: These strategies are more complex but offer planning flexibility and tax advantages.
Each option has unique benefits depending on your financial situation, so it’s worth reviewing with a tax or financial advisor.
Key QCD Rules to Remember
- Direct transfer only: The charity must receive the funds directly from your IRA.
- Eligible charities only: Public charities, religious institutions, and schools qualify.
- Annual limit: Up to $100,000 per individual per year.
- IRA contribution coordination: Contributions to the same IRA reduce the available QCD amount.
We Can Help
QCDs offer a powerful way to support the causes you care about while managing your tax liability. Like all financial decisions, planning ahead and consulting with your advisor can help ensure your giving aligns with both your philanthropic and financial goals.
