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).
- 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