Using a Qualified Charitable Distribution (QCD)

March 01, 2023

With recent changes to tax code, more and more people are simply using the standard deduction when they file their income tax returns. This means that any charitable giving one may do, does not get itemized and thus does not qualify for a tax deduction. A QCD can help create some tax savings.

What is a QCD? A QCD is a direct payment from your individual retirement account (IRA) to a qualified charity. Any payments issued can be counted towards satisfying ones required minimum distribution, up to $100,000. The tax benefit to making a charitable contribution from your IRA is that those payments are not required to be reported as taxable income. This feature provides the benefit of reducing ones topline income for the year, and reporting less ordinary income. Reducing income can have many benefits in retirement from paying less income tax, having less Social Security taxed, and reducing Medicare premiums.  One thing to note, because the payment is not considered income you cannot also take a deduction for the donation.

What are the requirements for a QCD?

  • You must be at least 70.5 years old at the time the QCD is processed.
  • Payment must be made out directly to the charity. The payment can be sent directly to the charity, or to you, and you then forward it on. Note: if the payment is made out to you, and you then forward to the charity, this will not qualify as a QCD.
  • To have the QCD count towards the current year RMD, payment must be processed by December 31 in that given year.
  • Some charities do not qualify for QCD’s like private foundations and donor advised funds.

It is important if making any QCD’s that you keep records and maintain any reporting the charity gives you for the donation. When your IRA provider sends the tax form, they will simply show all withdrawals as a normal distribution. The reporting of the QCD will be made when taxes are filed. To find out if a QCD makes sense for you, consult your financial advisor and/or tax advisor.