To help guide them, here are a few frequently asked questions and answers on QCDs.
What is a Qualified Charitable Distribution (QCD)?
A QCD is a direct transfer of funds from an IRA, payable directly to a qualified charity, such as Communities Foundation of Texas (CFT). Amounts distributed as a QCD can be counted toward satisfying a required minimum distribution (RMD) for the year, up to $105,000 per individual in 2024. The QCD is excluded from a donor’s taxable income.
When can a donor make a QCD from an IRA?
Donors can make a QCD beginning at age 70½ years old.
For a QCD to count toward a current year’s RMD, the funds must come out of an IRA by the RMD deadline, which is generally December 31st of each year.
How much can be distributed as a QCD?
The maximum annual distribution amount that can qualify for a QCD in 2024 is $105,000. This limit would apply to the sum of QCDs made to one or more charities in a calendar year. If donors file a joint tax return, both spouses can each make a $105,000 QCD from their own IRAs.
Can the QCD offset a required minimum distribution (RMD)?
A QCD can satisfy all or part of an RMD that starts at age 73 for traditional IRAs. The money distributed as a QCD does not count toward the donor’s adjusted gross income (AGI) as it does with a regular distribution.
Does a donor receive an income tax deduction with a QCD?
No, there is not a tax deduction for a QCD, rather it reduces income and therefore can benefit even those donors who do not itemize.
What accounts are eligible to make a QCD?
The account types that are eligible for QCDs include traditional and inherited IRAs, SEP and SIMPLE IRAs (inactive plan only). Under certain circumstances, QCDs may be made from a Roth IRA. However, Roth IRAs are not subject to RMDs during a donor’s lifetime, and distributions are generally tax-free. Consult a tax advisor to determine if making a QCD from a Roth is appropriate for a donor’s situation.
Non-IRA qualified retirement plans, such as an employer offered 401(k), 403(b), etc., are not eligible. However, it may be possible to transfer or rollover funds from a non-IRA qualified retirement plan to an IRA. Donors should check with their retirement plan administrator for eligibility and guidelines. Once the new IRA is established, they may then initiate an IRA QCD.
How is a QCD initiated?
Contact the IRA administrator to request a QCD to be sent directly to a qualified charity. Most likely the plan administrator will have a form for the donor to complete.
Are there any restrictions on a QCD?
A QCD may not be made to a Donor-Advised Fund, supporting organization, or private foundation. A QCD must be an outright gift and the donor may not receive any benefits in exchange such as tickets to an event, membership, etc.
What type of acknowledgment should a donor expect to receive from a QCD?
Donors should receive an acknowledgment including a statement that no goods or services were received in exchange for the qualified distribution. Should a donor choose to direct a QCD to CFT, we will further state in the letter that the donor does not maintain advisory privileges on the funds gifted.
How is a QCD reported to the IRS?
A QCD is reported by the IRA custodian as a normal distribution on IRS Form 1099-R for any non-inherited IRAs. To report a QCD on a Form 1040 tax return, the full amount of the charitable distribution is generally reported on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. Enter “QCD” next to this line. Donors should keep the acknowledgment of the donation for their tax records. Check with a tax advisor to confirm any personal tax reporting requirements.
What if a donor takes a RMD and then gives to charity later?
If a donor takes the RMD as income, instead of as a QCD, the RMD will count as taxable income. This additional taxable income may push donors into a higher tax bracket and may also reduce their eligibility for certain tax credits and deductions. For example, taxable income helps determine the amount of a donor’s Social Security benefits that are subject to taxes. Keeping taxable income level lower may also help reduce potential exposure to the Medicare surtax. If a donor plans to give to charity, he or she may wish to consider making a QCD to eliminate or reduce the impact of RMD income.
Is there any benefit to a QCD before a donor is required to take a minimum distribution from an IRA?
As a result of the SECURE Act 2.0, taxpayers are not subject to RMDs until they reach the age of 73. However, the age at which an individual may begin making QCDs did not change and remains at 70 ½. For individuals who may not need the additional income and are concerned about the impact of their future RMDs on their AGI, they may reduce the future size of their required distributions by beginning charitable distributions sooner. Since a QCD is not taxable and is not included in a donor’s AGI, a charitable distribution may be more beneficial than a ROTH IRA conversion or a withdrawal of funds.
What funds at CFT qualify for a QCD?
A donor may give to existing funds at CFT including Designated Funds, Field of Interest Funds, Scholarships, Nonprofit Endowments, etc. (excluding donor-advised funds).
Can a new fund be established at CFT with a QCD?
With the exception of a Donor-Advised Fund, a new named or anonymous fund may be established with a QCD. Minimum balances may apply depending on fund type.
What if a donor wants to give to several charities through a QCD?
In 2024, a donor may make as many QCDs as he or she would like up to a cumulative amount of $105,000. Check with the plan administrator as they may have a minimum distribution amount or maximum number of distributions allowed.
CFT can be especially helpful if a donor wishes to make QCDs to multiple charities. Donors may conveniently make one QCD to CFT and provide a list in advance of how they would like the funds distributed. Gifts can benefit a fund(s) at CFT or pass-through directly to other named charities. Contact us to discuss the options and what fees may apply.
If I or a donor have more questions, who should I contact?
We recommend you contact your tax advisor or plan administrator to discuss if an IRA QCD is smart for you. Contact Morgan Richards, Director of Charitable Gift Planning at CFT, for more information on how CFT can partner with you and your clients in making an IRA QCD to benefit CFT or other qualified charities.
