Qualified Charitable Distribution
Contribute to a charity directly from your IRA and avoid taxable income
Commonly referred to as QCDs or a QCD Gift
Do I Qualify for the Qualified Charitable Distribution?
To qualify for the tax savings, a taxpayer must be 72 years of age or older and the distribution must be paid directly to a qualified charity.
2022 Qualified Charitable Distribution Details
A Qualified Charitable Distribution (QCD) allows a direct contribution to a charity from a qualified individual retirement account (IRA).
Doing a direct distribution to the charity allows the taxpayer and/or spouse to contribute an amount up to the annual limit and avoid adding the distribution amount to Adjusted Gross Income (AGI) and taxable income.
Amounts removed from an IRA are treated as ordinary income and is reported in the Income section of the Individual Income Tax Return (1040).
AGI is used to calculated many different items in the tax return. Higher (AGI) may limit the amounts that can be deducted for various credits and deductions.
Higher AGI can also make more of your Social Security taxable, may make you subject to the Additional Medicare Tax, and is even used to calculate the Medicare Premiums you pay.
A QCD is often used to pay Required Minimum Distributions (RMDs) but can be useful for making Charitable Contributions when you cannot not itemize deductions.
No charitable deduction is allowed for the QCD as taking the QCD exempts the IRA distribution from income.
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Reduces taxable income
May prevent Additional Medicare Tax or making Social Security payments taxable
May prevent an increase in Medicare Premiums
Allows taxpayers to pay RMD without increasing adjusted gross income or taxable income
Can be done even if the taxpayer does not itemize
Both taxpayer and spouse can do a QCD, each individually subject to the QCD limit
Charitable contributions are not subject to AGI limitations
In an IRA with basis, the QCD is taken from the taxable portion of the IRA first instead of using the normal proration process
Cannot be made from a Traditional 401(k) plan
Required Minimum Distributions cannot be undone after transfer
Assumptions When Taking the Qualified Charitable Distribution
Taxpayer or spouse are at least 70 1/2 before the end of the tax year
There is an expectation that there will be a taxable distribution from an eligible IRA during this tax year
The QCD will be made from a Traditional IRA, an inactive SEP IRA, or an inactive SIMPLE IRA (there is no tax benefit from contributing from a Roth IRA).
The IRA trustee will allow QCDs
The charity receiving the QCD is an eligible charity
Requirements to Claim the Qualified Charitable Distribution
Transfer must be made directly from the IRA trustee to an eligible charity
The charity must be a 501(c)(3) organization that accepts QCDs
The QCD cannot be sent to a Private Foundation or Donor Advised Fund
You cannot receive a benefit from the QCD, such as a meal, tickets or other goods or services for making the charitable contribution
IRA must be a Traditional IRA, a Roth IRA, an inactive SEP IRA, or an inactive SIMPLE IRA. You can also do a QCD from an inherited IRA
An inactive SEP or SIMPLE IRA is one that does not have a contribution made to it during the calendar year of the QCD
No tax withholding is made for the QCD
The QCD check is sent directly from the IRA trustee to the charity
If used to pay the RMD, the RMD must not have been previously paid that year
If used to pay the RMD, the distribution must be made prior to the due date of the RMD, general December 31st.
Business Entities That Can Claim the Qualified Charitable Distribution
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.