Donating your Required Minimum Distribution: Quick Facts about QCD’s
by Carolyn Rice
If you are over the age of 70 1/2, own a traditional or inherited IRA and make donations to charitable organizations, you may wish to consider qualified charitable donations (QCD) from your IRA. A QCD is a gift made directly to a qualified charity (must be a 501(c)(3)) from an IRA. After several years of on-again off-again, the PATH Act of 2015 made QCDs a permanent option for IRA owners. Following are some guidelines for QCDs:
- The gift must be one that would, had the funds not come from an IRA, be fully eligible for a charitable deduction on the taxpayer’s return. No goods, services or benefits from the donation should be received by the donor. Donor advised funds are not eligible for QCDs.
- Given as a QCD, the distribution from the IRA is not counted as income on the donor’s tax return nor does the gift qualify as a charitable deduction.
- Checks written from the IRA must be written directly to the charitable organization. Any checks written to the IRA owner will be treated as a distribution even if sent on to the charity.
- If you are required to take distributions from your IRA (at age 73 in 2023), a QCD can satisfy part or all of your required distribution without increasing your income. Doing a QCD versus a distribution may reduce the amount of your social security that is taxable and can keep your adjusted gross income lower for other purposes such as your Medicare premiums.
- Gifts of up to $100,000 can be given per taxpayer each year. If a husband and wife have separate IRAs, each can give up to $100,000 for a total of $200,000. The $100,000 limit will be indexed for inflation starting in 2023.
- You must be 70 ½ on the date of the distribution. Any distribution processed prior to reaching the age of 70 ½ will be treated as taxable income.
- SEP IRAs and Simple IRAs are not eligible for QCDs if they are still receiving contributions. Employer retirement plans are also not eligible.
- The SECURE Act 2.0 makes provision for a one time gift of up to $50,000 from an IRA to be used to fund a Charitable Gift Annuity or a Charitable Remainder Trust.
If you are interested in making a QCD from your IRA we suggest that you look into adding checking to the IRA account so that you can make your gifts in the amount and when you wish. While we understand that many people like to make gifts during the holiday season at the end of the year, we suggest that you make any gifts from your IRA earlier in the year and confirm that the checks have cleared the account before year-end to avoid confusions and possible questions from the IRS.