Qualified Charitable Distributions

Qualified Charitable Distributions

April 12, 2023

Qualified Charitable Distributions (QCDs) – A Tax-Savvy Way to Support Your Favorite Charities

Most people are charitable in nature and like to help the causes that are important to them.  People often use after-tax dollars to make their charitable contributions, but there could be a better way.

Do you want to support a charitable cause and save on taxes at the same time? If so, a Qualified Charitable Distribution (QCD) may be a great option for you.

A QCD is a direct transfer of funds from your Individual Retirement Account (IRA) to a qualified charity. The transfer counts towards your Required Minimum Distribution (RMD), and you can exclude it from your taxable income. You can donate up to $100,000 per year through QCDs.  They are available to IRA owners who are at least 70 1/2 years old. If you meet the eligibility criteria, you can use QCDs to support your favorite charities and reduce your tax bill.

Here are some benefits of QCDs:

  1. Reduce your taxable income: QCDs are excluded from your taxable income, which can reduce your adjusted gross income (AGI) and your tax bill. This can be especially helpful if you're close to a higher tax bracket or if you're subject to the Medicare surtax.
  2. Meet your RMD: If you're required to take RMDs from your IRA, QCDs can satisfy that requirement. This can be helpful if you don't need the money for your living expenses or if you want to avoid a higher tax bill due to a larger RMD.
  3. Support your favorite charities: QCDs allow you to support charitable causes that are important to you. You can donate to public charities that are eligible to receive tax-deductible contributions, but not to donor-advised funds or private foundations.

Here's how to make a QCD:

  1. Contact your IRA custodian or financial planner: Ask your them about the process for making a QCD. They may have a specific form or procedure that you need to follow.
  2. Choose a qualified charity: Make sure that the charity you want to donate to is eligible to receive QCDs. You can check with the charity or use a tool like the IRS Tax Exempt Organization Search.
  3. Direct the transfer: Instruct your IRA custodian to transfer the funds directly to the charity. This is important because if you receive the funds first and then donate them, the amount will be included in your taxable income.
  4. Keep records: Keep records of your QCDs and the charities you donate to. You'll need to report the QCD on your tax return, but you won't receive a tax deduction for the donation.

In conclusion, QCDs are a tax-savvy way to support your favorite charities and reduce your tax bill. If you're eligible to make QCDs, consider this strategy as part of your overall charitable giving plan. As with any tax-related decision, it's important to consult with your financial advisor and tax professional to determine if QCDs are right for you.