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Lower Your Taxes – Qualified Charitable Distributions (QCDs)

Qualified Charitable Distributions (QCDs) are a great way for charitably minded older individuals to save on taxes. 

A Qualified Charitable Distribution (QCD) is a direct distribution made from an IRA to a qualified charity that is excluded from your taxable income. For those aged 72 and above, a QCD can satisfy your annual required minimum distribution (RMD). 

QCD Highlights:

  • Must be 70 ½ or older to make a QCD
  • Maximum of $100K annually per individual (so $200K per married couple)
  • QCD eligible accounts include traditional IRAs, inherited IRAs, inactive SEP plans, and inactive SIMPLE IRAs
  • Charity must be a qualifying 501(c)(3) organization. Certain charities won’t work for a QCD, including Donor-advised fund sponsors, private foundations and supporting organizations

Custodians report distributions from IRAs on form 1099-R. When you get a 1099-R from your custodian, your QCD will be shown as a normal distribution. The form will not recognize this distribution as a QCD. Thus it is important that you notify your CPA that you made a QCD because they will not be able to tell from just looking at your form. 

QCDs differ from normal charitable contributions by lowering your adjusted gross income (rather than providing a deduction to a higher income level under a normal distribution). To receive a deduction for a normal distribution, one must itemize their taxes (which fewer people do as a result of the higher standard deduction in the Tax Cuts and Jobs Act). Various tax deductions and credits are based on your adjusted gross income so a QCD also may help you qualify for more advantageous tax treatment in areas like social security tax and medicare rates. 

Scott Caufield, CFA, CPA