January 3, 2024
Qualified Charitable Distributions
Qualified Charitable Distributions (QCDs) allow taxpayers age 70 ½ or older with traditional IRAs (not including active SEP or SIMPLE IRAs) to make charitable contributions directly from their IRA to a qualified charity (not a donor advised fund or private foundation) that will be excluded from their taxable income. This is especially beneficial for those who have to take required minimum distributions (RMDs) since Qualified Charitable Distributions from an IRA will count towards a taxpayer’s RMD. Therefore, utilizing QCDs gives those at RMD age the opportunity to satisfy their RMD requirement without incurring a tax liability.
For individuals age 70 ½ and older, QCDs can provide greater tax savings than typical charitable contributions reported on Schedule A of their 1040 since the distributions are guaranteed to be excluded from income even if the taxpayer cannot itemize their deductions. Traditional charitable contributions, including contributions to donor advised funds, are only useful to taxpayers who itemize their deductions. Even then, deductions are limited to 30% to 60% of AGI depending on the type of contribution (cash vs. non-cash).
In order for QCDs to be eligible they must be contributed directly from the taxpayer’s IRA to the qualified charity. They are only excluded from a taxpayer’s income up to $100,000 for single taxpayers ($200,000 for MFJ) per year.
Important to note, QCDs are not indicated as such on a taxpayer’s 1099-R, so it is imperative that any Qualified Charitable Distributions made throughout the year are properly documented by the taxpayer and communicated to their tax preparer.
To summarize, the steps for making a Qualified Charitable Distribution are as follows:
- Request a QCD withdrawal form from your financial advisor.
- The custodian will then process and transfer the distribution to the charity indicated.
- You will receive your 1099-R in the mail after year end.
- Specify to your tax preparer the amount of distributions on your 1099-R that are attributable to QCDs.
Please be sure to reach out to your Rockbridge financial advisor if this is something you would like to pursue.