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03.28.22

Qualified Charitable Distributions from an IRA

By Barry Chisholm

A qualified charitable distribution (QCD) is an IRA withdrawal that is paid directly from your IRA custodian to a qualifying charity. Eligible charities include 501(c)(3) organizations and houses of worship. IRS has a database of approved charities on its website (https://www.irs.gov/charities-non-profits/tax-exempt-organization-search).

QCD Requirements

IRA owner must be age 70 1/2 or older to make a tax free charitable contribution. If you meet the age requirement, you can transfer up to $100,000 per year directly from an IRA to an eligible charity(s) without paying income tax. If you file a joint return and your spouse also owns an IRA, your spouse can also make a charitable contribution of up to $100,000, meaning couples can exclude up to $200,000 of retirement savings from income tax if they donate to charity. Qualified charitable contributions must be made by December 31 each year.

Satisfy Required Minimum Distributions (RMD)

You must begin taking RMDs from an IRA when you reach age 72. These distributions are taxable at ordinary income tax rates. A QCD counts toward your RMD and can be a good way to distribute the minimum required amount without paying any income tax. However, timing is everything. In order to satisfy your annual RMD requirement with a qualified charitable distribution, the QCD must be the first distribution from the IRA account each year.

Direct Transfer to Charity

Funds must be transferred directly from the IRA to an eligible charity by the IRA custodian in order to qualify for the tax break. If you withdraw the money from your IRA and later donate it, it won't qualify as a tax-free qualified charitable distribution.

You Can’t Claim QCD as a Deduction

The benefit of a QCD is that the distribution is not included on your 1040 as income. As a result, the QCD cannot be used as a charitable deduction if you itemize your deductions.

Roth IRA and Qualified Charitable Distribution

It’s possible to take a QCD out of a Roth IRA, but there’s generally no advantage in doing so because Roth IRA distributions are already tax-free.

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Barry Chisholm

Professional Staff

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