What is a Qualified Charitable Distribution (QCD)?

A Qualified Charitable Distribution, or QCD, is a way to give from your pre-tax IRA account directly to a charitable organization and avoid being taxed on the amount given. This is a great giving strategy that provides for charitable giving intentions, as well as tax savings. However, there are some rules surrounding the QCD strategy.

• You must be at least 70 ½ or older.
• An individual can give up to $100,000 to one or more charities.  
• For married couples, each spouse can make a QCD up to the $100,000 limit.
• The amount given directly to charity can represent your required IRA distribution.   
• You cannot take physical control of the assets – they must pass directly to the charity.
• Distributions may come from a traditional IRA, inherited IRA, inactive SEP plan, and inactive SIMPLE IRA.
• As current law stands, QCDs cannot be made to donor-advised funds and private foundations.

Employing this strategy can save you income tax and may help to keep you from entering a higher tax bracket.  It may also allow your adjusted gross income to be reduced to a level at which you would not be subject to Income-Related Monthly Adjustment Amount surcharges from Medicare. Additionally, providing for your charitable wishes from your IRA account may reduce the amount of distribution you are required to take in future years.

Check out a couple other recent pieces in this series, where we covered Donor-Advised Funds (DAFs) and Charitable Remainder Trusts (CRTs).