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Qualified Charitable Distributions from IRAs – What are the Tax Benefits?

By Veronica Rodriguez

There is a way to support your favorite charities while also reducing your taxable income. For retirees, this is made possible through Qualified Charitable Distributions (QCD). 

What are Qualified Charitable Distributions from IRAs?

At age 73, individuals who hold an IRA must take the required minimum distributions (RMD) every year regardless of wanting or needing them. The RMDs increase the individuals’ total taxable income. This rise in income might place the taxpayer in a higher tax bracket. It could also initiate phaseouts, reducing or removing specific tax deductions like personal exemptions and itemized deductions, and occasionally leading to increased taxes on Social Security. QCDs can be a great way to reduce RMDs and optimize the tax benefits of giving.

QCDs allow individuals aged 70½ or older to donate up to $100,000, directly from their Individual Retirement Accounts (IRA) to a qualified charity, offering a unique opportunity to make a significant impact while benefiting from tax advantages. Normal distributions from a traditional IRA can be taxable, however, QCDs are tax free if they are transferred directly from the IRA to the organization. Individuals can exclude up to $100,000 per year from their gross income through QCDs. For married couples, each spouse meeting the age requirement of 70½, can contribute up to $100,000 annually, allowing for a combined exclusion of up to $200,000. 

How to Make a QCD

Making a QCD from your IRA is a straightforward process, but it requires compliance with IRS rules. Individuals looking to make a QCD should contact their IRA custodian, who can find eligible charities and make the transfer directly from your IRA. QCDs can only be made by the IRA custodian to the charity directly from the IRA. Payments made directly from the owner will not count as a QCD. In addition, QCDs can be applied toward meeting your RMDs for the year, provided certain rules are met.

What Kind of Charities Qualify?

To qualify for a QCD contribution from an IRA, the charity must be a 501(c)(3) organization. Some charities that might not be eligible to receive contributions are private foundations, supporting organizations, or donor-advised funds. Starting from 2023, it’s possible to utilize a QCD to support Charitable Remainder UniTrust, Charitable Remainder Annuity Trust, or Charitable Gift Annuity. The maximum one-time amount for this purpose is $50,000.

Reporting

A QCD from a non-inherited Roth IRA is reported as a regular distribution on IRS Form 1099-R. For Inherited IRAs and Inherited Roth IRAs, it will be reported as a death distribution. To claim a deduction for a charitable contribution on your tax return, you need to receive an acknowledgement of the donation when making a QCD. Even though QDCs are not deductible as contributions on Schedule A, a written receipt is required before filing a return.

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