A Qualified Charitable Distribution is a way for you to move funds out of your IRA to a qualifying charity income tax-free. If you feel this might be a good strategy, here are 4 QCD rules that may surprise you.

  1. You must be age 70 ½ or older.

  • A QCD is permitted if the distribution is made on or after the date that you attain age 70 ½.
    • It is not enough that you will reach that age later in the year.
  • QCDs are not limited to IRA owners.
    • You may also do a QCD if you are an IRA beneficiary. However, the same rules apply.

  1. Not all retirement account funds are available for QCDs.

  • You may take a QCD from your traditional IRAs or your Roth IRA.
  • Additionally, QCDs from SEP and SIMPLE IRAs that are not ongoing are permitted.
    • Plans are ongoing if an employer contributes for the plan year ending with or within the calendar year in which the QCD would be. You may not take QCDs from your employer plan.
  • QCDs apply only to taxable amounts.
    • You may not transfer your basis (nondeductible IRA contributions or after-tax rollover funds) to charity as a QCD.
  • QCDs are an exception to the pro-rata rule, which usually applies to IRA distributions.

  1. There is an annual limit.

  • QCDs are capped at $100,000 per person per year. If you are married, you and your spouse can each contribute up to $100,000 from your IRAs.
  • If you withdraw more than $100,000 from your IRA to contribute to a charity, you may not carry over the excess to a future year.
  • You can do a QCD with the first $100,000 of the distribution and the remaining amount will be treated as a taxable distribution.
  • You can take a charitable deduction for the amount over $100,000 if you itemize deductions and otherwise qualify for the deduction.
  1. A QCD must be a direct transfer.
  • You must make a direct IRA transfer from the IRA to the charity.
  • You should instruct the IRA custodian to make the distribution check payable to the charity of your choice.
  • Whenever a check is payable to a charity but mailed to you, it is considered a direct payment.
    • Be careful! If you receive a check payable to you from your IRA and then later you give those funds to charity, that is not considered a QCD.

 

 

By Sarah Brenner, JD
Director of Retirement Education

Copyright © 2022, Ed Slott and Company, LLC Reprinted from The Slott Report, 2022, with permission. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
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