
Understanding Required Minimum Distributions (RMDs) and Qualified Charitable Contributions (QCDs)
Key Changes to Required Minimum Distributions Under SECURE 2.0
On December 29, 2022, President Biden signed the SECURE 2.0 Act as part of the Consolidated Appropriations Act of 2023. One of the significant changes in this law is the adjustment to the starting age for Required Minimum Distributions (RMDs). The minimum age has increased to 73 and will rise to 75 by 2033. However, individuals who started taking RMDs before 2023 must continue their withdrawals.

Source: Horsesmouth, LLC
What Does This Mean for Retirement Account Holders?
- No new RMDs will begin in 2023 unless already started in previous years.
- The earliest new RMDs under this rule will commence in 2024.
- Those who expected RMDs in 2023 may need to plan alternative withdrawals to cover expenses.
- Market fluctuations can impact RMD amounts due to changes in year-end balances.
SECURE 2.0: Reduced Penalties for Missed RMDs
Previously, failing to take an RMD resulted in a steep 50% penalty on the undistributed amount. The SECURE 2.0 Act has reduced this penalty:
- The new penalty is 25% of the missed RMD amount.
- If corrected in a timely manner, the penalty is further reduced to 10%.
This change provides some relief for those who inadvertently miss RMD deadlines.
Qualified Charitable Contributions (QCDs) and Their Tax Benefits
A Qualified Charitable Contribution (QCD) allows IRA owners aged 70 1/2 or older to make direct charitable donations from their IRA while reducing taxable income.
How Do QCDs Benefit Donors?
- QCDs count toward satisfying RMD requirements.
- Contributions are excluded from taxable income, lowering adjusted gross income (AGI).
- Lower AGI may reduce taxable Social Security benefits and Medicare premium adjustments.
- Donors who do not itemize deductions can still receive tax benefits.
Key Points About QCDs
- Individuals can donate up to $100,000 per year via QCDs, with limits indexed for inflation starting in 2023.
- QCDs must be processed by December 31 to count for that tax year.
- Distributions must be made payable directly to a qualified charity.
- QCDs can be used to satisfy RMDs if processed before taking an RMD for the year.
Once-In-A-Lifetime QCD for Charitable Gift Annuities or Trusts
A new provision under SECURE 2.0 allows a one-time QCD of up to $50,000 to fund a charitable gift annuity or charitable remainder trust (CRUT or CRAT).
Here's What You Need To Know:
- The $50,000 limit applies only once per person.
- Funds must be directed to an eligible charitable entity.
- The charitable remainder trust (CRUT) is likely the most flexible option.
Example 1: Distribution Qualifies as a Qualified Charitable Distribution
Jane's Required Minimum Distribution for the year is $10,000. In the first week of December, Jane (age 74) submitted instructions to her IRA custodian to process a Qualified Charitable Distribution for $20,000 from her IRA. At that time, Jane had not yet made any other distributions from her IRA for the year.
Even though the $20,000 is paid to the charity and not Jane, $10,000 of the $20,000 QCD is counted towards Jane's RMD for the year. As a result, Jane is not required to distribute any additional amount for the year for RMD purposes.
If Jane's QCD was for $8,000, she would need to distribute only $2,000 to satisfy her RMD ($8,000 QCD + $2,000 regular distribution = $10,000 RMD).
Example 2: Distribution Does Not Qualify as a Qualified Charitable Distribution
Tom's Required Minimum Distribution for the year is $10,000. He had already withdrawn $10,000 during the last week of November. During the first week of December, Tom (age 75) instructed his IRA custodian to process a Qualified Charitable Distribution for $20,000.
When Tom heard that a QCD can be used to satisfy an RMD, he wanted to withdraw another $10,000 over the amount distributed in November. However, the amount was not eligible because the first distribution made during an RMD year goes toward satisfying the account owner's RMD until the RMD is satisfied, which means that the $10,000 distributed in November is Tom's RMD. Had Tom taken that $10,000 IRA distribution after the QCD was processed, the amount would have been eligible for a QCD.
FAQ's Regarding QCDs.
Do Qualified Charitable Distributions have a dollar limit?
You can make a Qualified Charitable Distribution of up to $100,000 (indexed for inflation starting in 2023). With these limits indexing, the recipient won't be losing value from inflation. Also, for married couples, keep in mind that the limit is set on an individual basis, so each person can make QCDs as long as the individual's total donations remain under the limit.
Do Qualified Charitable Distributions have a deadline?
A distribution must be processed by the end of the year to be considered a QCD for that year. All distributions processed between January 1 and December 31 of a calendar year can be treated as QCDs for that year, as long as they meet the other requirements.
Must a Qualified Charitable Distributions be paid directly to a charity?
Yes. A distribution made to you is not treated as a QCD. Instead, the distribution must be payable to the charity. However, distributions made in the form of a check payable to the charity can be delivered to you, and you can then deliver the check to the charity. The charity also must be "eligible", meaning it meets the definition under Internal Revenue Code (IRC)170(b)(1)(A), other than an organization described in IRC 509(a)(3) or a donor advised fund (DAF).
Can a QCD be used to satisfy an RMD?
Yes! A Qualified Charitable Distribution can be used to satisfy an Required Minimum Distribution if the QCD is processed before the RMD. Any IRA withdrawal processed before the QCD is treated as an RMD up to your RMD due for the year, and therefore not eligible for rollover. Let's go through two common examples.
Looking for Financial Advice?