Qualified Charitable Distributions (QCDs) are an excellent tool for retirees who want to align their finances with their values. A QCD is a tax-efficient way for individuals age 70 ½ or older to give directly from their Individual Retirement Account (IRA) to a qualified charity. Rather than withdrawing funds from an IRA, paying income taxes on the distribution, and then donating the after-tax amount, a QCD allows the gift to go directly from the IRA to the charity of your choice, keeping the distribution excluded from taxable income.
To qualify, you must be at least 70 ½ years old at the time of the distribution, and the gift must come from a traditional IRA. Each individual can contribute up to $100,000 per year ($200,000 for married couples filing jointly), and gifts must be made to a qualified 501(c)(3) public charity. It’s important to note that donor-advised funds, private foundations, and supporting organizations do not qualify for QCDs.
A great advantage of a QCD is that it can satisfy all or part of your Required Minimum Distribution (RMD) once you reach the age of 73. Since QCDs are excluded from taxable income, they can help lower your adjusted gross income (AGI), which could lower Social Security benefits taxes and help avoid higher Medicare premiums (called your “IRMA”). Even if you don’t itemize deductions, you can still benefit from the tax advantages of giving through a QCD.
For example, if your RMD for the year is $30,000 and you choose to make a $10,000 QCD, that $10,000 goes directly to your chosen charity and is excluded from taxable income. You would only then report the remaining $20,000 as income for the year.
So, by giving directly from an IRA, you can meet your RMD obligations, support charities of your choice, and potentially reduce your tax liability.
