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5 Questions Donors May Be Asking about Qualified Charitable Distributions (QCDs)

Qualified Charitable Distributions (QCDs) are a beneficial tool for financial and charitable planning. Yet, as their popularity grows, so does the confusion surrounding them. To ensure you’re well-equipped to navigate these waters, we’ve compiled answers to the five most common questions donors have about QCDs. We’re here to assist, so don’t hesitate to reach out to the AACF for further clarification or support.

Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?

Short answer: Mostly yes.

QCDs are primarily made from traditional or inherited IRAs. However, if no further contributions are being made to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, these too can be sources for QCDs.

While Roth IRAs are eligible, utilizing them for QCDs is less common due to the tax-free nature of their distributions.

How Does a QCD Differ from an RMD?

Short answer: They aren’t the same, but a QCD counts towards your RMD.

Required Minimum Distributions (RMDs) are the minimum amounts that must be withdrawn annually from retirement accounts after reaching age 73, and these withdrawals are taxable.

A QCD, however, allows for direct transfers to eligible charities from IRAs, potentially counting towards the RMD without being taxable to the donor. When a taxpayer follows the rules, a QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution.

Is a QCD Possible Before RMDs Are Required?

Short Answer: Yes, for those aged 70 ½.

You might assume that there is a standard age used to mean “retirement age,” but that is not the case. Under the SECURE Act, though, the required date for starting RMDs was shifted from 70 ½ to 72 and is now up to 73 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½.

This discrepancy allows taxpayers to make charitable gifts directly from their IRAs before RMDs begin, offering a strategic advantage for early charitable planning.

Can QCDs Be Directed to a Community Foundation fund?

Short Answer: Yes, with conditions.

QCDs cannot be directed to donor-advised funds but are welcomed by other types of community foundation funds, such as nonprofit endowment funds. This provides a flexible option for donors wishing to support local initiatives through their IRAs.

What Is the Maximum QCD Amount?

Short Answer: Up to $105,000 annually per individual.

Individuals can transfer up to $105,000 each year from their IRAs directly to qualified charities through QCDs. For married couples, this means the potential to direct up to $210,000 annually to charitable causes, offering significant tax advantages.

Navigate Qualified Charitable Distributions with Ease with AACF

The Athens Area Community Foundation is happy to partner with you in leveraging QCDs to enhance your philanthropic impact and experience more benefits of giving. Whether you’re looking to grow your endowment fund or explore charitable strategies for 2024 and beyond, we’re here to support your journey. Reach out to discuss how QCDs can play a pivotal role in your charitable giving strategy.