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QCDs: $105,000, $108,000, and More Things to Smile About

For attorneys, CPAs, and financial advisors, the end of the year often brings a flurry of activity as you finalize clients’ charitable giving plans. In the midst of the hustle, you may find yourself asking: “Wait, how exactly does a Qualified Charitable Distribution (QCD) work?”

Don’t worry—you’re not alone. While QCDs are frequently covered in financial media, their complexity can make them challenging to recall in detail, especially when you’re determining whether they’re the right fit for a client. Fortunately, the team at the Athens Area Community Foundation is here to support you. Let’s dive into some of the most common questions about QCDs to help you guide your clients with confidence.

What Is a Qualified Charitable Distribution?

A Qualified Charitable Distribution (QCD) allows individuals to transfer funds directly from certain retirement accounts to eligible charities. This strategy enables taxpayers to support the causes they care about while potentially reducing their tax burden.

Here are five key questions—and answers—about QCDs:

1. Is an IRA the Only Eligible Source for a QCD?

Short Answer: Almost.

Long Answer: A QCD can be made directly to a qualifying charity from a traditional IRA or an inherited IRA. Additionally, if an employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, those accounts may also be used. While Roth IRAs are technically eligible for QCDs, it is rarely advantageous to use them because Roth distributions are already tax-free.

2. What’s the Difference Between a QCD and an RMD?

Short Answer: Quite a bit! But a QCD can count toward an RMD.

Long Answer: Required Minimum Distributions (RMDs) must be taken from qualified retirement plans like IRAs starting at age 73. These distributions are taxable income. A QCD, on the other hand, is a direct transfer of funds from certain retirement accounts to a qualifying charity. While QCDs can satisfy RMD requirements for the year, they differ in one critical way: QCD amounts sent to charity are excluded from taxable income. This makes QCDs a powerful tool for clients who want to minimize their tax liability while supporting meaningful causes.

3. Can a Taxpayer Make a QCD Before RMDs Begin?

Short Answer: Yes, within a narrow age window.

Long Answer: While the SECURE Act raised the age for RMDs to 73, the eligibility age for QCDs remains 70½. This allows clients to make charitable gifts from their IRA even before they’re required to take RMDs. For charitably inclined clients, this provides an opportunity to start their philanthropic giving early while still enjoying tax advantages.

4. Can My Client Direct a QCD to a Fund at the Community Foundation?

Short Answer: Yes, if it’s a qualifying fund.

Long Answer: While donor-advised funds are not eligible to receive QCDs, other types of funds at the Athens Area Community Foundation can. These include unrestricted funds, field-of-interest funds, designated funds, and endowment funds established by nonprofit organizations. These options provide flexibility for clients looking to support their community while leveraging the tax benefits of a QCD.

5. How Much Can My Client Give Through a QCD?

Short Answer: $105,000 per year in 2024, increasing to $108,000 in 2025.

Long Answer: Clients can transfer up to $105,000 per year in 2024 (or $108,000 in 2025) from their IRA to a qualifying charity. Married couples can each direct up to these limits from their individual IRAs, allowing for combined contributions of $210,000 in 2024. These amounts represent a significant opportunity for high-net-worth clients to minimize income tax liability while making a meaningful charitable impact.

Why QCDs Matter

Qualified Charitable Distributions offer a win-win for clients and charities alike. For your clients, QCDs provide a way to reduce taxable income, satisfy RMD requirements, and support causes they care about. For charities, QCDs represent a critical source of funding that can help drive their missions forward.

By incorporating QCDs into your clients’ financial strategies, you can demonstrate your commitment to helping them achieve both their financial and philanthropic goals. And you don’t have to navigate the nuances of QCDs alone—the team at the Athens Area Community Foundation is here to help.

Tap Into the Power of QCDs

At the Athens Area Community Foundation, we’re dedicated to helping you and your clients make the most of Qualified Charitable Distributions. Whether your clients are looking to meet immediate gifting needs or plan for future giving, we’re here to provide expert guidance and support.

Have questions about how to implement a QCD strategy? Reach out today—we’d love to help you and your clients turn generosity into impact.