Qualified Charitable Distributions from IRAs

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Qualified Charitable Distributions from IRAs

Charitable giving and philanthropy are often important to successful individuals. They want to support causes that matter to them and they also see the tax benefits of donating to those causes. If philanthropy is one of your financial goals, you’ve probably considered the question of where to direct your charitable dollars. That’s a fundamental decision, but it’s just as important to consider how, when and what to give. Maybe consider Qualified Charitable Distributions from IRAs.

At the end of 2015, Congress restored an important option for charitable giving that had expired the previous year. The Protecting Americans from Tax Hikes Act made permanent the chance to make a Qualified Charitable Distribution (QCD) from an Individual Retirement Account (IRA.) What this means is that certain IRA owners can make contributions to their favorite charities directly from their IRAs, and the distribution from the IRA to the charity counts towards the owner’s Required Minimum Distribution for the year.


During our working years, we generally do most of our savings in qualified plans, such as 401(k) and 403(b) accounts, and in IRAs. The benefit in saving this way is that we don’t pay income tax on the money before it goes in, and the funds grow tax-deferred until they’re withdrawn. However, eventually, the IRS requires the account owner to start taking withdrawals. The SECURE Act, which went into effect on January 1, 2020, delayed the age at which an account owner must start taking their Required Minimum Distributions (RMDs) from 70 ½ to 72. That means Taxpayers who turn 70 ½ in 2020 or after have until April 1 of the year following their 72nd birthday to begin taking their RMDs.

Plenty of people rely on withdrawals from IRAs and qualified accounts for their income in retirement. But others cover their income needs with their social security benefits, pensions, or other investments. This second group often has no need for their RMDs and would prefer to avoid the additional income tax burden they bring. If their goals also include benefiting a charity, religious institution, or school, the QCD may be attractive.

Anyone over age 70 ½ can make a QCD of up to $100,000 per year. That age didn’t change with the SECURE Act. The distribution can be used to satisfy the an individual’s RMD. The taxpayer doesn’t receive a charitable income tax deduction, but there is no need for him or her to report the distribution on their income tax return. The transaction is entirely tax neutral.


One alternative to the QCD is simply to withdraw funds from an IRA, report that withdrawal as taxable income, and then make a tax-deductible donation. In some cases, that may have a very similar result to the QCD, but there are a few reasons why the QCD may be a better option. First of all, if the taxpayer makes a charitable donation without using a QCD, he or she will need to itemize income tax deductions, when taking the standard deduction might otherwise be simpler. Also, the charitable deduction is capped at a percentage of the taxpayer’s adjusted gross income (AGI). The QCD avoids the chance of running up against that cap. Some income tax deductions, such as the deduction for unreimbursed medical expenses, are only available if they exceed a certain percentage of the taxpayer’s AGI. When RMDs drive up the taxpayer’s income, even if those funds ultimately go to charity, it can be harder to meet those minimums.

There are many different ways to provide financial support to a charity, some with significant tax advantages to the donor. They include sophisticated strategies like charitable trusts, and can also be as simple as writing a check or donating appreciated stock. You can also name a charity as a beneficiary under your will or as beneficiary of an insurance policy, IRA, or annuity. It’s a good idea to explore the possibilities before deciding that any one strategy is right for you.


There are a couple of important things to remember about QCDs. The contribution must go directly from the IRA to the charity, not pass through the hands of the taxpayer first. Also, the QCD is only available for gifts to public charities, not private family foundations, charitable trusts, or donor advised funds. Finally, the SECURE Act removed the prohibition on making IRA contributions after age 70 ½, so it’s now possible to contribute to an IRA and do a QCD in the same year; however, it’s important to note that the IRA contribution will reduce amount that can be transferred via QCD.

As with all big financial decisions, how and when to make a contribution to charity is something you should think through carefully. The QCD has unique advantages, and your tax and financial advisors can help you decide if it’s the right strategy for you.

Kathleen Cassidy, JD*, Vice President, Advanced Markets

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Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. *Licensed but not practicing.

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