New Code Y is Optional for 2025 QCDs
A few months ago, the IRS introduced a new Code Y for the reporting of qualified charitable distributions (QCDs) by IRA custodians on the 2025 Form 1099-R. The IRS has now issued guidance on its website making this new code optional for 2025.
QCDs Basics
QCDs first became available in 2006, and they were made permanent in 2015. The strategy has become increasingly popular among IRA owners who are charitably inclined. With a QCD, IRA owners or beneficiaries who are at least age 70½ make a tax-free donation to charity directly from their IRA. An important benefit of a QCD is that it can be used to satisfy a required minimum distribution (RMD).
The 2025 annual limit is $108,000, and it is indexed for inflation. A one-time QCD of $54,000 (also indexed) can go to a split-interest entity, such as a charitable remainder annuity trust, a charitable remainder unitrust or a charitable gift annuity.
QCDs can only be made through a direct transfer of IRA funds to charities that qualify under the tax code. Gifts made to donor-advised funds or private foundations do not qualify. In addition, the client cannot receive anything of value from the charity in exchange for making a QCD, and that must be documented in writing by the charity.
Update: Code Y is Optional for 2025 QCDs
Historically, IRA custodians were not required to report a QCD differently than any other IRA distribution. There never was any special code on Form 1099-R to identify the QCD. Instead, it was up to the taxpayer to let the IRS know about the QCD on the tax return.
For 2025 QCDs, the IRS changed its approach. Earlier this year, the IRS released instructions for the 2025 Form 1099-R which introduced a new Code Y for QCDs. The introduction of the new code for QCDs posed significant implementation challenges for IRA custodians which led to complaints from the large financial institutions that serve as IRA custodians (and their lobbyists).
On October 16, the IRS backtracked and made Code Y optional, instead of mandatory, for 2025 QCDs. The following language is now posted on the IRS website:
The entry of code Y in box 7 of a 2025 Form 1099-R is optional. If you are completing and filing a 2025 Form 1099-R, you may choose to, but are not required to, enter code Y in box 7.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC
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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.
