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The ABC's of IRA, RMD, and QCD

A qualified charitable distribution (QCD) allows individuals who are 70½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions. As a result, donors may avoid being pushed into higher income tax brackets.





How do qualified charitable distributions work?


Understanding qualified charitable distributions begins with understanding required minimum distributions. People who hold Individual Retirement Accounts (IRAs) are required to take RMDs each year beginning at age 72—even if they don’t need or want the funds. That same required minimum distribution increases the IRA holder’s total taxable income.

How QCDs Work: QCDs are also called IRA charitable distributions or IRA charitable rollovers. They enable individuals to fulfill their required minimum distribution by a direct transfer of up to $100,000 to charity. They can also be used support multiple charities, as long as the sum of the distributions is within the $100,000 limit. But because QCDs don’t increase taxable income, higher tax rates can be avoided.


How QCDs are made: Qualified charitable distributions are made directly to the eligible charity from a traditional IRA, inherited IRA, inactive Simplified Employee Pension (SEP) plan and inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs. (Inactive SEP and SIMPLE IRAs are accounts that no longer receive employer contributions.)

The money is a direct transfer that never passes through the hands of the IRA holder. Instead, the IRA custodian can either send a check directly to the charity or the account owner, who then hands it over to the charity.


Does a QCD make sense for me?


A QCD can provide several potential benefits. It may be a suitable giving strategy for donors who:


  • Are required to take a minimum distribution from an IRA, but don’t need the funds and would face increased tax liabilities if they took the distribution as income.


  • Would like to reduce the balance in an IRA to lower future required minimum distributions.


  • Would like to make a larger charitable gift than they could if they simply donated cash or other assets. The value of charitable gifts that can be deducted from a tax return usually ranges from 20 to 60 percent of the donor’s adjusted gross income. This AGI-based limit does not apply to QCDs, allowing donors to make larger gifts.


  • Do not wish to make their contribution to a foundation or donor-advised fund.


  • Have identified which charities they want to support immediately with a substantial gift.


When might a qualified distribution not be effective?


Although qualified charitable distributions can be a good option in the right circumstances, they may not be the best charitable giving strategy for everyone. Always check with a your financial professional prior to making any decision. Your CPA or financial advisor can help you minimize your tax liability and maximize the value and impact of your gift by choosing the right strategy or combination of strategies for your situation.


If you have questions contact Daniel Summins, Director of Development at daniel.summins@marillacstvicnent.org.


Presented by Marillac St. Vincent Family Services Vincentian Circle.


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