What You Should Know About Qualified Charitable Distributions (QCDs)
A qualified charitable distribution (QCD) is a payment made directly from an IRA to a charitable organization. Specific requirements must be met for an IRA owner to make a QCD. Below is a summary of the rules and best practices to help you understand this charitable distribution.
What Are QCDs, and How Do They Work?
Typically, regular IRA distributions are considered taxable income for the IRA owner. Qualifying amounts donated as QCDs are excluded from taxable income, which can lower your taxable income and potentially reduce taxes in retirement. Here are the key points to know:
- The IRA owner must be age 70½ or older at the time of the QCD.
- The maximum allowable amount for QCDs in 2024 is $105,000 per year.
- Married couples filing jointly can each donate $105,000 from their respective IRAs.
- The receiving charity must be eligible to receive tax-deductible contributions.
Be Aware of These Limitations
- QCDs can only be made from traditional IRAs and inherited traditional IRAs.
- QCDs cannot be made from active retirement accounts, such as SEP or SIMPLE IRAs or 401(k)s.
- QCDs are not eligible for a charitable deduction on your tax return.
- QCDs must be processed by the end of the calendar year to count for that tax year.
Special Processing and Reporting Requirements
To qualify as a QCD, the payment must be made directly from your IRA to the charity. Writing a personal check and later donating it will not qualify. Be cautious of the following issues:
- Some custodians automatically withhold taxes on checks written against IRAs, which is not advisable for QCDs.
- If the charity fails to cash the check promptly, your QCD may not be reported correctly.
Distributions will be reported on Form 1099-R as normal IRA distributions. Be sure to inform your tax preparer of any QCDs so they can report them correctly on your tax return (e.g., with “QCD” notation).
QCDs from Roth IRAs and Nondeductible Contributions
Although rare, QCDs can be made from Roth IRAs under certain circumstances. Consult a tax advisor to see if this is appropriate for you. For IRAs with deductible and nondeductible contributions, QCDs are distributed from the pretax portion first.