Should You Make a Qualified Charitable Distribution (QCD) by Year-end?
As you talk with your wealth advisor on ways to reduce your taxable income by year-end, you might want to consider a QCD, assuming you are age 70 ½ or older.
Q: What Is the Maximum Annual QCD?
A: Individuals age 70 ½ or older can make a QCD of up to $100,000/year per individual.1 Married couples can make a total QCD of $200,000. The QCD must be a direct transfer from an IRA to an eligible charity or charities of choice. If you contribute to multiple charities, the total combined amount donated can’t exceed the maximum distribution.
Q: What Are Key Benefits of a QCD?
A:
- You don’t have to itemize your tax return to complete a QCD.
- A QCD made to a charity in turn lowers your taxable income, which may put you in a lower tax bracket.
- QCDs count toward meeting your annual required minimum distribution (RMD) if you are age 72 or older. The normal annual due date for an RMD is Dec. 31, so the QCD as your RMD must be made by then. By transferring money to a charity versus having to take your annual RMD and be taxed on that distribution, you avoid paying taxes on that donated amount.
Q: When Might a QCD Not Be Right for My Situation?
A:
- If you have securities that have grown in value since you bought them, it could be a better tax strategy to donate them to charity instead of making a QCD.
- You may decide to create a donor-advised fund (DAF) instead. When you fund it, you receive an immediate tax deduction, but you can wait to decide which charities to support.
Q: Which Types of Accounts Don’t Allow a QCD?
A: You can’t make a QCD to donor-advised fund sponsors, private foundations and supporting organizations, although those organizations are categorized as charities. Be sure to consult with your wealth advisor before making a gift to ensure the charity is qualified to accept QCDs.
Sources:
1 “What Is a Qualified Charitable Distribution?”
2“IRS Provides Tax Inflation Adjustments”
Additional fees may also apply for tax planning and preparation services. The information herein is general and educational in nature and should not be considered financial or tax advice. Tax laws and regulations are complex, please consult with a professional prior to making any financial and tax-related decisions.
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