12 QCD Rules You Must Know
If you have an IRA and want to support charitable causes, a Qualified Charitable Distribution (QCD) offers a tax-efficient way to donate. QCDs allow IRA owners to transfer funds directly to eligible charities, avoiding tax liabilities while fulfilling philanthropic goals. Understanding the rules surrounding QCDs is crucial to ensuring compliance and maximizing benefits.
12 Essential Rules You Must Know When Making A Qualified Charitable Distribution In 2024
1. QCDs Are Only Available to Individuals Aged 70½ or Older
To qualify for a QCD, you must be at least 70½ years old at the time of the distribution. This rule applies whether you are the IRA owner or a beneficiary. If you make a distribution before reaching this age, it does not qualify as a QCD and may be subject to taxes.
2. The Maximum QCD Amount Is $105,000 Per Year
Each person can transfer up to $105,000 annually through a QCD. This cap is per individual, meaning if you have multiple IRAs, the combined total cannot exceed this limit. The donation must be made directly to a qualified charity to retain its tax-free status.
3. SECURE 2.0 Allows a One-Time QCD to Split-Interest Entities
The SECURE 2.0 Act introduced a provision allowing a one-time QCD of up to $53,000 (in 2024) to go to a split-interest entity. This includes:
- Charitable remainder annuity trusts (CRATs)
- Charitable remainder unitrusts (CRUTs)
- Charitable gift annuities (CGAs)
These arrangements provide income to donors or their beneficiaries while ultimately benefiting a charity.
4. Donor-Advised Funds Do Not Qualify for QCDs
Donor-advised funds (DAFs) are popular charitable giving accounts, but QCDs cannot be directed to them. The IRS restricts QCDs to go directly to eligible public charities to ensure immediate charitable impact.
5. A QCD Can Satisfy Your Required Minimum Distribution (RMD)
If you are required to take an RMD from your IRA, a QCD can count toward fulfilling that obligation. Instead of receiving taxable income from an RMD, transferring funds directly to a charity through a QCD helps lower taxable income while supporting a cause.
6. No Double Dipping—You Cannot Deduct QCDs
A common mistake is assuming that QCDs qualify for a charitable tax deduction. Since QCDs are excluded from taxable income, you cannot claim an additional deduction for the contribution. This prevents taxpayers from benefiting twice from the same donation.
7. Married Couples Can Each Contribute Up to $105,000
If you and your spouse each have separate IRAs, you both can make individual QCDs of up to $105,000 per year. This allows couples to collectively donate up to $210,000 while enjoying tax advantages.
8. The Charity Must Be Eligible to Receive Tax-Deductible Contributions
For a QCD to be valid, the receiving charity must be eligible to receive tax-deductible contributions. This means the organization must be a 501(c)(3) public charity or a religious institution. Private foundations and certain other entities do not qualify.
9. QCDs Can Satisfy Charitable Pledges
A QCD can be used to satisfy an outstanding charitable pledge. Unlike other forms of giving, this does not create a prohibited transaction. If you made a commitment to donate a certain amount to a charity, you can use a QCD to fulfill that promise without tax penalties.
10. Charitable Substantiation Requirements Apply
The IRS requires that you obtain written acknowledgment from the receiving charity for any QCD. This acknowledgment should confirm:
- The amount received
- The date of the donation
- That no goods or services were received in exchange for the donation
This documentation is essential for tax reporting and compliance.
11. QCDs Can Only Be Made With Taxable IRA Funds
You cannot use after-tax (non-deductible) IRA contributions for a QCD. Only taxable amounts in an IRA are eligible. If your IRA consists of both taxable and non-taxable funds, distributions are treated as coming from taxable sources first when determining QCD eligibility.
12. QCDs Cannot Be Made From Active SEP or SIMPLE IRAs
If you have a Simplified Employee Pension (SEP) or a Savings Incentive Match Plan for Employees (SIMPLE) IRA that is actively receiving employer contributions, you cannot make a QCD from that account. However, if the SEP or SIMPLE IRA is no longer receiving contributions, a QCD may be possible.
FAQs About Qualified Charitable Distributions (QCDs)
What Types of Accounts Can Be Used for a QCD?
QCDs can be made from traditional IRAs, inherited IRAs, and inactive SEP or SIMPLE IRAs. They are not permitted from 401(k)s or Roth IRAs.
Can I Make a QCD If I Have Not Started My RMDs?
Yes. You can make a QCD as soon as you turn 70½, even if you are not yet required to take RMDs.
What Happens If I Exceed the $105,000 QCD Limit?
Any amount over the $105,000 limit is treated as a taxable distribution and cannot be excluded from your taxable income.
How Do I Report a QCD on My Tax Return?
You will receive a 1099-R form from your IRA custodian. The taxable amount should be reported as $0 on your tax return, with "QCD" written in the margin. Consult a tax professional to ensure proper reporting.
Can I Direct a QCD to Multiple Charities?
Yes. You can divide your QCD among multiple eligible charities as long as the total remains within the $105,000 annual limit.
Understanding these QCD rules helps ensure that you maximize tax benefits while supporting your favorite charities. Before making a QCD, consult a financial advisor to align your charitable giving with your overall financial plan.
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.