IRA Qualified Charitable Distributions (QCD)
Explanation and Frequently Asked Questions
A Qualified Charitable Distribution (QCD) is a direct transfer of funds from your IRA custodian directly to a qualified charity (payable to that charity). QCDs can be counted towards your required minimum distribution (RMD) for the year, if certain rules are met.
In addition to the benefits of giving to Cru, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from you IRA. Using the QCD – instead of withdrawing the money from your IRA and then donating it – will lower your adjusted gross income and in turn may:
- Lower your tax bracket
- Lower your Medicare premium
- Lower your federal taxes
- Allow you to give a larger gift without being subject to Charitable Gift Deduction limitations
- Reduce your state taxes, and more!
Also, QCDs don’t require that you itemize in order to benefit, which due to recent tax law changes, means you may decide to take advantage of the higher standard deduction, but still use a QCD for your charitable giving.
- Can I make a Qualified Charitable Distribution? While many IRAs are eligible for QCDs (Traditional, Rollover, Inherited, SEP (inactive only) ad SIMPLE (inactive only) – there are requirements:
- You must be 70 ½ or older to be eligible to make a QCD
- The maximum annual amount that can qualify for a QCD is $100,000. This applies to the sum of QCDs made to one or more charities in a calendar year. (If you file taxes jointly, your spouse can also make a QCD from his or her own IRA within the same tax year for up to $100,000)
- For a QCD to count towards your current year’s required minimum distribution (RMD), the funds must come out of your IRA before you start taking your RMD by your RMD deadline which is generally December 31.
- Can I use funds from my 401(k) or 403(b)?
- Funds can be rolled from a 401(k) or 403(b) plan to a traditional IRA and then transferred directly to a charity, but they cannot be directly transferred from the 401(k) or 403(b).
- Can I use a QCD to open a donor advised fund?
- While the IRS doesn’t allow you to use a Qualified Charitable Distribution from your IRA for this purpose, you can still use IRA funds to establish your DAF. You will have to first receive the distribution as taxable income then you can contribute those funds into your DAF to receive an offsetting tax-deduction.
- How do I report a QCD on my taxes?
- A QCD is reported as a normal distribution on IRS Form 1099-R for any non-Inherited IRAs. For Inherited IRAs or Inherited Roth IRAs, the QCD will be reported as a death distribution. Itemization is not required to make a QCD. While the QCD amount is not taxed, you may not then claim the distribution as a charitable tax deduction.
- When making a QCD, you will receive an acknowledgement for your tax purposes. You will want to take this to your tax advisor to make sure this amount is handled correctly on your tax return.
- A QCD is not subject to withholding. State tax rules may vary, so for guidance, consult your tax advisor.
- I’m ready to make a QCD. How do I get started?
- Download, print, and return our QCD form (below) with instructions.
The information contained here is not intended to be legal or tax advice. Please consult your legal or tax professional for guidance on your particular situation.