Qualified Charitable Distributions (QCDs) are a direct transfer of monies from your IRA custodian as funds payable to a qualified charity. QCDs may be tallied toward meeting your annual required minimum distributions (RMDs), provided certain stipulations are met.
This is a win-win for almost all charitably-minded investors. First, by donating to a charity you do good with your money. Equally important if not as altruistic, a QCD excludes the amount donated from your taxable income.
This is a win-win for almost all charitably-minded investors. First, by donating to a charity you do good with your money. Equally important (if not as altruistic), a QCD excludes the amount donated from your taxable income.
This is unlike almost every other traditional withdrawal from an IRA. Lower taxable income may help reduce the impact on certain other deductions and tax credits. This includes impacts on Medicare costs.
Eligibility Requirements for Making a QCD
Most IRAs are eligible for making QCDs. This includes Inherited, Rollover, and Traditional IRAs. SEP and SIMPLE IRAs are also eligible if they are rolled over. However, there are specific requirements that must be met:
- You need to be 72 and one-half years old or older.
- QCDs are limited to the amount, otherwise taxed as ordinary income, excluding any overages or non-deductible contributions.
- $105,000 is the Maximum annual amount that qualifies for a QCD. This is the total allowable to one or more charities annually.
- For spouses filing taxes jointly, a spouse can also make a QCD from his or her IRA within the same tax period for up to $105,000 (doubling it to $210k).
- For a QCD to count towards the current year’s RMD funds must leave the IRA by the RMD deadline, typically December 31.
Funds donated beyond the RMD do not count toward a future year’s RMD. There are nuanced rules that address the types of charities that qualify for QCDs. The easiest defined benchmark is that all charities must be a 501(c)(3) organization, eligible to receive tax-deductible contributions.
The Bottom Line
As you plan your financial future and consider ways to make a positive impact, Qualified Charitable Distributions (QCDs) offer a unique opportunity. By leveraging QCDs, you can support the causes you care about while also benefiting from significant tax advantages.
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