Qualified Charitable Distribution (QCD) Best Practices

As the calendar year winds down, many people look for meaningful ways to support charitable causes, especially during the holiday season. If you’re over age 70½ and have an IRA, there’s a powerful way to give that also offers a valuable tax benefit: the Qualified Charitable Distribution (QCD).

What Is a QCD?

A QCD allows individuals aged 70½ or better to donate up to $100,000 per year directly from their IRA to one or more qualified charities – completely tax-free! These distributions can also satisfy your Required Minimum Distribution (RMD) without increasing your taxable income.

Here are a few things to keep in mind if you are considering making end-of-year QCDs.

Why QCDs Make Financial Sense

While generosity is the driving force behind charitable giving, QCDs offer several financial advantages.

• Counts towards your RMD without triggering income tax
• Reduces your Adjusted Gross Income (AGI), which may:
  • Lower taxable Social Security benefits
  • Reduce exposure to net investment income tax
  • Increase eligibility for medical expense deductions
• Supports your charitable goals while preserving more of your income
• Gives flexibility – donate all, part, or more than your RMD (up to $100,000 per year)

Key Requirements to Qualify

To ensure your QCD qualifies for tax benefits, keep these rules in mind:

• You must be age 70½ or better at the time of the distribution.
• The $100,000 limit applies per IRA account owner (spouses may each give up to $100,000).
• Funds must come from a Traditional IRA or an Inherited IRA.
• The donation must be made directly to a qualified charitable organization.

Important Restrictions to Note

There are a few limitations to be aware of, especially if donor-advised funds (DAFs) are a normal part of your giving practice.

• DAFs do not qualify for QCDs.
• You cannot receive goods or service in exchange for your donation.

Best Practices for a Smooth QCD Process

These suggestions are true for both QCDs as well as any other charitable donations you make throughout the year. However, in the case of QCDs, timing is everything and not using the money by the deadline could result in tax penalties. If you have any concerns about how long the process may take, reach out to your Financial Advisor immediately.

• Confirm the charity is IRS-qualified.
• Keep copies of checks and receipts for your records.
• Make sure the check clears your IRA before December 31st*.
• Request a written acknowledgement from the charity.
• Share a complete list of QCDs with your tax professional.

*Reminder: If your QCD does not clear by year-end, you may face a 50% IRS penalty for missing your RMD.

Final Thoughts

Being generous is its own reward. QCDs offer a unique opportunity to align your charitable goals with smart tax planning. If you’re required to take an RMD and want to give back this holiday season, consult with a trusted tax professional or financial advisor to explore how QCDs can benefit both you and the causes you care about.