Qualified charitable distributions
Qualified charitable distributions (QCDs) allow individuals to donate to charity as a tax-free IRA distribution.
QCDs can be included as part of a Required Minimum Distribution.
There are several restrictions:[note 1]
- The maximum deductible contribution limit is $100,000
- Distributions must be made directly to the charitable organization
- The IRA owner must be 70½ or over
QCDs must come from an individual IRA or a Roth IRA. An SEP or SIMPLE IRA also qualify if there are no active contributions.[note 2]
If you file a joint return, your spouse can also have a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income.
A comprehensive "How to" guide can be found on the Michael Kitces blog. See: Rules To Do An IRA Qualified Charitable Distribution
Morningstar has published a video interview which provides easy-to-understand explanations and examples.
The article on Morningstar: Retirees: Make the Most of Your Charitable Giving
The interview clarifies an important point regarding eligibility of the deduction. If the charity provides anything in return for the donation, the deduction is not allowed. Search the transcript for "$10 tote bag".
Benefits of a QCD
- Allows those who use the standard deduction to realize a tax advantage from a charitable contribution.[note 3]
Required Minimum Distributions (RMDs) and additional distributions from an IRA are part of your taxable income. QCD's do not count as taxable income, so you can lower your taxable income by the amount of your QCD - thereby lowering your taxes. This is beneficial if you use the standard deduction instead of itemizing.
- Allows those at or near the earnings limit for higher medicare premiums to lower their taxable income.
- ↑ The Office of the Law Revision Counsel is the offical source of US law.
H.R.2029 - 114th Congress (2015-2016): Consolidated Appropriations Act, 2016 contains the Protecting Americans from Tax Hikes Act of 2015 which made the tax law permanent on December 18, 2015.
- ↑ IRS Notice N-07-07 (A-36) defines a QCD for any type of IRA (including a Roth IRA) that is neither an (on-going SEP or on-going SIMPLE IRA). An SEP or SIMPLE IRA is on-going if it is maintained under an employer arrangement under which an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which the charitable contributions would be made. As employer retirement plans (such as a 401(k), 403(b), or the federal Thrift Savings Plan) are not mentioned, they do not qualify for QCDs.
- ↑ In addition to the benefits of giving to charity, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from an IRA. Keeping your taxable income lower may reduce the impact to certain tax credits and deductions, including Social Security and Medicare. Ref: Qualified Charitable Distributions (QCDs), Fidelity Investments, viewed August 04, 2017.
- ↑ 1.0 1.1 1.2 "Publication 590-B (2015), Distributions from Individual Retirement Arrangements (IRAs)". IRS.gov. Internal Revenue Service. 2015. Retrieved August 5, 2016.
- ↑ "26 USC 408: Individual retirement accounts". uscode.house.gov. Office of the Law Revision Counsel. 2016. p. section 408(d)(8). Retrieved August 5, 2016.
- IRA FAQs - Distributions (Withdrawals), from the IRS
- Bogleheads forum topic: "RMD/QCD [Qualified Charitable Distributions]". 12 Jul 2016
- Bogleheads forum topic: "Will Vanguard/Fidelity automatically deduct QCD from RMD?". 29 Dec 2017
- Publication 590-B (2015), Distributions from Individual Retirement Arrangements (IRAs)
- Rules To Do An IRA Qualified Charitable Distribution