Qualified Charitable Distributions

What Qualified Charitable Distributions Accomplish

A Qualified Charitable Distribution (QCD) allows IRA owners aged 70.5 or older to transfer up to $105,000 per year (2024) directly from their IRA to qualified charities. The transferred amount counts toward Required Minimum Distributions (RMDs) but is excluded from taxable income.

For a retiree with a $50,000 RMD who makes a $30,000 QCD, the math works as follows:

• RMD satisfied: $30,000 via QCD + $20,000 regular distribution = $50,000 total
• Taxable income: $20,000 (not $50,000)
• Tax savings at 24% bracket: $7,200

The QCD provides tax benefit even to retirees who take the standard deduction and cannot itemize charitable contributions. This distinguishes QCDs from regular charitable giving, where non-itemizers receive zero deduction.

Source: IRC Section 408(d)(8), as modified by SECURE 2.0 Act of 2022.

The Age 70.5 Rule (Not 73)

The QCD age requirement is 70.5, not the RMD age of 73. This creates a planning window:

The planning opportunity: Between ages 70.5 and 73, you can make QCDs to reduce your IRA balance before RMDs begin. This permanently reduces future RMD amounts and keeps more assets in tax-advantaged status longer.

Calculating 70.5: You reach 70.5 exactly six months after your 70th birthday. If you turn 70 on March 15, you become QCD-eligible on September 15.

2024 QCD Limits and Inflation Adjustment

The SECURE 2.0 Act introduced annual inflation adjustments to the QCD limit:

Per-person limit: The $105,000 limit applies per individual. A married couple with separate IRAs can each make $105,000 in QCDs, totaling $210,000 annually.

One-time QCD to split-interest entity: SECURE 2.0 added a one-time $53,000 QCD option (2024, indexed) to charitable remainder trusts or charitable gift annuities. This is a lifetime limit, not annual.

How QCDs Satisfy RMDs Tax-Free

The mechanics require understanding the interaction between QCDs and RMD calculations:

Step 1: Calculate your RMD

RMD = IRA balance (12/31 prior year) / Distribution period factor

Example: $800,000 IRA balance, age 75 (factor 24.6) RMD = $800,000 / 24.6 = $32,520

Step 2: Determine QCD amount

You can satisfy part or all of the RMD via QCD:

• Minimum QCD: Any amount (no floor)
• Maximum QCD: $105,000 or RMD amount (if lower than $105,000)

Step 3: Execute QCD first

QCDs should be processed before taking regular IRA distributions in the calendar year. If you take the full RMD as a regular distribution first, you cannot retroactively redesignate it as a QCD.

Step 4: Take remaining RMD (if any)

If RMD exceeds QCD amount, withdraw the difference as a regular taxable distribution.

Worked Example: Full RMD via QCD

Your situation:

• Age: 76
• IRA balance (12/31/2023): $600,000
• Distribution period factor: 23.7
• RMD: $600,000 / 23.7 = $25,316
• Annual charitable giving: $25,000+
• Tax bracket: 22%
• Filing status: Single, takes standard deduction ($16,550 in 2024 for age 65+)

Option A: Regular RMD + Charitable Gift

1. Withdraw $25,316 RMD (taxable income)
2. Donate $25,000 to charity from checking account
3. Result:
   • AGI: $25,316 (plus other income)
   • Charitable deduction: $0 (takes standard deduction)
   • Net taxable income: $25,316
   • Federal tax on RMD: $5,569

Option B: QCD for Full RMD

1. QCD $25,316 directly from IRA to charity
2. Result:
   • RMD satisfied: Yes
   • Taxable income from IRA: $0
   • Charitable giving completed: $25,316
   • Federal tax on RMD: $0

Tax savings: $5,569

The charity receives the same $25,316. You pay $5,569 less in federal tax.

Eligible IRA Types and Exclusions

Eligible accounts for QCD:

• Traditional IRA
• Inherited IRA (if you meet age requirement)
• Inactive SEP IRA (no employer contributions in year of QCD)
• Inactive SIMPLE IRA (no employer contributions in year of QCD)

Ineligible accounts:

• 401(k), 403(b), 457 plans (even if over 70.5)
• Active SEP or SIMPLE IRA
• Roth IRA (technically eligible, but no tax benefit since Roth withdrawals are already tax-free)

Workaround for 401(k) funds: Roll 401(k) to Traditional IRA first, then make QCD from the IRA. The rollover itself is not taxable.

Eligible Charities and Exclusions

Eligible recipients:

• 501(c)(3) public charities
• Churches and religious organizations
• Educational institutions
• Hospitals and medical research organizations

Ineligible recipients:

• Donor-advised funds (DAFs)
• Private foundations
• Supporting organizations
• Charitable remainder trusts (except the one-time SECURE 2.0 provision)

The DAF restriction matters: If you use DAFs for regular giving, you cannot substitute QCDs. The funds must go directly to operating charities.

Interaction with IRA Basis (Form 8606)

If you have nondeductible (after-tax) contributions in your Traditional IRA, QCDs use a special ordering rule:

QCDs come first from pre-tax dollars. They do not reduce your basis or require pro-rata treatment.

Example:

• Traditional IRA: $200,000
• Basis (nondeductible contributions): $20,000
• Pre-tax portion: $180,000

A $30,000 QCD reduces the pre-tax portion by $30,000. Your $20,000 basis remains intact for future withdrawals.

This is favorable because it preserves your basis for regular distributions while using pre-tax dollars for tax-free charitable transfers.

Source: IRS Notice 2007-7, Q&A 42.

Common Pitfalls

Pitfall 1: Taking RMD before QCD

If you withdraw your full RMD in January and then try to make a QCD in December, the QCD does not replace the taxable distribution. The IRS treats distributions in first-out order for QCD purposes within the calendar year, but you must have untaken RMD remaining.

Prevention: Make QCDs early in the year, before taking regular RMD distributions.

Pitfall 2: Check going to you instead of charity

If the IRA custodian sends the check to you (even if payable to the charity), the IRS may treat it as a taxable distribution. Some custodians require specific procedures.

Proper execution: Request that the check be made payable to the charity and mailed directly to the charity, or use the custodian's online QCD process.

Pitfall 3: Contributing to IRA after age 70.5

If you make deductible Traditional IRA contributions after reaching 70.5, your QCD limit may be reduced. The reduction equals the total post-70.5 deductible contributions.

Example: You made $7,000 deductible IRA contributions at age 71. Your QCD limit becomes $105,000 - $7,000 = $98,000 until the contributions are offset.

Source: IRC Section 408(d)(8)(D).

Pitfall 4: Sending to DAF or private foundation

QCDs to donor-advised funds or private foundations do not qualify, even though both are 501(c)(3) entities. The full amount becomes taxable.

Pitfall 5: Failing to document

The charity must provide written acknowledgment of the QCD. Your IRA custodian reports the distribution on Form 1099-R but does not indicate it was a QCD. You must maintain records proving the charitable transfer.

Tax Reporting Requirements

QCDs require specific reporting on your tax return:

Form 1099-R: Shows total IRA distribution (including QCD amount). The distribution code does not distinguish QCDs from regular distributions.

Form 1040, Line 4: Report total IRA distributions on Line 4a. On Line 4b (taxable amount), enter the amount minus QCDs. Write "QCD" next to Line 4b.

Example:

• Total IRA distributions: $40,000
• QCD amount: $25,000
• Line 4a: $40,000
• Line 4b: $15,000 (with "QCD" notation)

Supporting documentation to retain:

• QCD request form submitted to IRA custodian
• Charity acknowledgment letter stating amount and date
• IRA custodian confirmation of transfer

Implementation Checklist

Eligibility Verification

• Confirm you are age 70.5 or older
• Verify IRA is eligible (Traditional, Inherited, inactive SEP/SIMPLE)
• Confirm you have not made deductible IRA contributions after 70.5
• Check recipient is operating 501(c)(3) (not DAF or private foundation)

Before Making QCD

• Calculate RMD for current year
• Determine QCD amount (up to $105,000 or RMD, whichever applies)
• Obtain charity's legal name and address
• Contact IRA custodian for QCD process and forms

Execution

• Complete QCD request form with custodian
• Specify charity as payee (not yourself)
• Request direct transfer to charity
• Make QCD before taking regular RMD distributions
• Confirm transfer completed before December 31

Documentation

• Obtain written acknowledgment from charity
• Save IRA custodian confirmation
• Note QCD amount for tax preparer
• Report correctly on Form 1040 ("QCD" notation on Line 4b)

The QCD provides a tax-efficient way for IRA owners over 70.5 to satisfy RMDs while supporting charities. The strategy delivers value regardless of whether you itemize deductions, making it particularly powerful for retirees taking the standard deduction. The key requirements are proper age, direct transfer to an operating charity, and careful documentation.