What is a qualified charitable distribution?
A qualified charitable distribution (QCD) is a direct transfer of funds from a taxable Individual Retirement Account (IRA) to a qualified charity.Individuals aged 70½ or older may be able to transfer up to $105,000 each year from their IRAs directly to one or more qualifying charities as a QCD. It can help with taxes because the distribution isn't considered part of their taxable income.
Benefits of a qualified charitable distribution
A QCD offers several benefits, including the following:Satisfying required minimum distributions
A QCD counts towards your annual required minimum distribution (RMD), which is the minimum amount that some retirement accounts such as traditional IRAs require you to cash out every year after you reach age 70.Reducing taxable income
Making a QCD is particularly beneficial if you don't need additional income from your RMD during the year. You can transfer money directly from your IRA to a qualified charity without including the distribution in your taxable income.Preventing the increase in taxable income from your RMD can keep you out of a higher-income tax bracket. It can also eliminate the phasing out of tax deductions with higher taxable income. Some will find it helpful in staying below income thresholds that would otherwise increase their Medicare premiums.
Supporting charitable causes
A QCD provides a direct way to support charities of your choice, allowing you to contribute to causes you care about while also enjoying tax benefits.QCD Rules
While a QCD offers benefits to account holders, there are guidelines dictating their use. Only certain people can make one based on QCD age limits, and only certain accounts are eligible. There are also limits to how much you can donate.Who can make a qualified charitable distribution?
You can make a QCD from your retirement funds if you are 70 years old or more. However, as of 2024 you cannot count this towards your year's RMD unless you are at least 73 years old, per the IRS.What accounts are eligible?
QCDs can't just come from any account. They must come from an IRA. Traditional IRAs offer a benefit, because their distributions are generally taxable. A qualified charitable distribution from inherited IRA accounts is also possible. While you can make a charitable distribution from a Roth IRA, there is no benefit because Roth IRA distributions are not subject to taxes.You can also make QCDs from Simplified Employment Plan (SEP) IRAs, along with Savings Incentive Match Plan for Employees (SIMPLE) IRAs. However, you can only do this if they are inactive.
401(k) accounts are not eligible for QCDs.
What are the QCD limits for 2024 and 2025?
The annual limit for QCDs rises to accommodate inflation. Before 2024, it stood at $100,000, but the 2024 limit was $105,000. The limit rose again to $108,000 in 2025. It's also possible for married couples that each have qualifying IRAs to donate their individual limits together, effectively doubling an individual contribution. This table summarizes the information:
- QCD limit 2024 (Single) $105,000
- QCD limit 2024 (Married Couple) $210,000
- QCD limit 2025 (Single) $108,000QCD limit 2025 (Married Couple) $216,000
How to set up a qualified charitable distribution
Making a QCD is simple. Just follow these steps:
- Approach the IRA custodian — It’s essential to donate through the IRA custodian, who handles the direct transfer to the charity. Contact them to begin the procedure.
- Verify charity eligibility — The distribution must go directly to an eligible charity.
- Arrange a direct transfer — You may not take a direct distribution to donate personally. Instead, the IRA custodian must send them directly to the charity via check or electronic transfer.
- Document the transaction — Charities cannot return any benefits to the donor, including goods and services, and you must prove that they haven't. To do that, get a receipt from the charity confirming this.
- Report the donation on your taxes — Enter the QCD amount on line 4a (total distribution) of your Form 1040, along with the taxable amount from that distribution on Line 4b (if the entire distribution is a QCD, the amount will be zero). You must also keep a Form 1099-R from the IRA custodian for tax reporting.
Types of charities that can receive a QCD
Only 501(c)(3) organizations qualify for QCDs. The IRS broadly allows the following types of organization to register as 501(c)(3):
- Public charities — Examples include food banks, animal shelters, chapters of the Red Cross, and community foundations such as boys' or girls' clubs.
- Religious organizations — These include churches, synagogues, and mosques.
- Educational institutions — Nonprofit universities and schools count here, but so do alumni associations and parent-teacher associations.
- Charitable hospitals and medical research organizations — Non-profit old-age homes may also qualify.
- Scientific organizations conducting public — interest research.
- Literary or cultural institutions
- Amateur sports — These may not provide athletic facilities or equipment.
- Prevention of cruelty to animals or children — Animal welfare organizations will often qualify here.
Ready to explore more ways to leave a legacy?
A QCD isn't your only option for charitable donations. Consider leaving a legacy by naming a qualified charity as a life insurance beneficiary in your life insurance policy. This is also an option for certain annuity policies, enabling you to register a charity as an annuity beneficiary.
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