QCDs can be a great, tax-savvy option for retirees who want to give back to causes they care about. Interested in learning more about QCDs and how to make them? This guide can help.
Qualified charitable distributions (QCDs) are also called IRA charitable distributions or IRA charitable rollovers. You can give a QCD to qualified charities if you are 70½ years old or older. A QCD allows individuals to donate up to $100,000 directly from a taxable IRA instead of taking their yearly required minimum distribution (RMD). As long as the sum distributed is within the limit, a QCD can be used to support multiple organizations.
QCDs are made directly to eligible charities from a traditional IRA, inherited IRA, inactive Simplified Employee Pension plan, or inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs.
When you give your QCD to charity, the amount you donate is excluded from your taxable income, which can reduce the impact of certain tax credits and deductions, like Social Security and Medicare. By donating to a qualifying charity, a QCD can potentially enable a donor to give a bigger charitable gift than they could if they just donated cash or other assets.
Beginning at age 73, individuals who hold IRAs are required to take annual RMDs, increasing the individual’s total taxable income. By giving a QCD to charity, and being absolved of the annual RMD, donors may avoid getting pushed into higher income tax brackets and prevent phaseouts of other tax deductions, such as personal exemption and itemized deductions. RMDs can also sometimes trigger high taxes on Social Security income. By making a QCD instead of taking the RMD, an IRA balance is reduced and may reduce RMDs in the future.
The total amount any person can contribute to a QCD is $100,000 (couples that file taxes jointly can make separate QCDs for a total of $200,000 between both IRAs). QCDs are limited to the amount that would otherwise be taxed as ordinary income. This excludes non-deductible contributions.
For a QCD to count toward the current year’s RMD, the funds must come out of an IRA by the RMD deadline, generally Dec. 31. Anything donated above an individual’s RMD does not count toward satisfying a future year’s RMD. State tax rules vary, so contributing to an IRA may result in a reduction of the deductible QCD amount.
Funds must be distributed directly to the qualified charities, not the IRA owner. When making a QCD gift to a charity, communicate clearly, in writing to both the charity and the IRA custodian, your intentions with the gift. (See below) Similarly, donors can’t benefit from making a qualified distribution to a charity, like purchasing something in a charity auction. QCDs cannot be claimed as an itemized charitable tax deduction. The benefit of a QCD lies in the savings on taxable income.
To qualify as a recipient of a QCD, an organization must be a registered 501(c)(3) nonprofit organization and eligible to receive tax-deductible contributions. Because charities must be registered 501(c)(3) nonprofit organizations to qualify, contributions are limited to United States-based causes. But by working with GlobalGiving as an intermediary, QCDs can be made to vetted organizations in 175+ countries around the world.
Want to learn more about how to make a gift to charity through your IRA? Speak to your financial professional for additional information. If you have questions about GlobalGiving and QCD giving, reach out to our dedicated Strategic Giving team at gifts@globalgiving.org.
Note: This is for informational purposes only and is not intended to provide, and should not be relied on, for tax advice. We recommend consulting a financial or tax advisor with any specific questions about how a QCD may impact your personal situation before making any contribution.
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