Qualified Charitable Distributions
Submitted by Keith Lucas, CFP®, APMA®
Private Wealth Advisor
North Coast Wealth Advisors
Did you know that, if you are at least 70½ years old, you can make tax-free charitable donations directly from your IRA? By making what's called a qualified charitable distribution (QCD), you can benefit your favorite charity while excluding up to $100,000 annually from gross income. These gifts, also known as "charitable IRA rollovers," would otherwise be taxable IRA distributions.*
How QCDs work
In order to make a QCD, you simply instruct your IRA trustee to make a distribution directly from your IRA (other than SEP and SIMPLE IRAs) to a qualified charity. The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income each year. And if you file a joint return, your spouse (if 70½ or older) can exclude an additional $100,000 of QCDs. Note: You don't get to deduct QCDs as a charitable contribution on your federal income tax return — that would be double-dipping. However, it is difficult for most retirees to itemize any more due to the large standard deductions currently in place.
QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to receive from your IRA, just as if you had received an actual distribution from the plan. However, distributions that you actually receive from your IRA (including RMDs) and subsequently transfer to a charity cannot qualify as QCDs.
*Assume that your RMD for 2023, which you're required to take no later than December 31, 2023, is $25,000. You receive a $5,000 cash distribution from your IRA in February 2023, which you then contribute to Charity A. In June 2023, you also make a $15,000 QCD to Charity A. You must include the $5,000 cash distribution in your 2023 gross income (but you may be entitled to a charitable deduction if you itemize your deductions). You exclude the $15,000 of QCDs from your 2023 gross income. Your $5,000 cash distribution plus your $15,000 QCD satisfy $20,000 of your $25,000 RMD for 2023. You'll need to withdraw another $5,000 no later than December 31, 2023, to avoid a penalty.