What is a QCD? It is not a triple word score in Scrabble nor an abbreviation for something that has been messed up. QCD stands for a Qualified Charitable Distribution and refers to a distribution from an Individual Retirement Account (IRA) that gets special treatment. Generally, an IRA account holder must begin taking annual required minimum distributions (RMD) starting at age 73 and the amount of the distribution is reportable as taxable income for the year it is received.
A QCD is a distribution from an IRA paid directly to the qualified charity. The amount of the QCD counts against the annual RMD but is not included in the IRA account holder’s taxable income for that year. The distribution can only be made from an IRA. It cannot be made from a profit-sharing plan, 401(k) plan or other employer sponsored plans. The IRA account holder must be at least age 70 ½. So, individuals that have grandfathered RMD beginning dates earlier than age 73 would qualify for a QCD. The aggregate amounts of all QCDs for 2024 cannot exceed $105,000.00. This amount is annually adjusted for a cost-of-living factor. The limit for 2024 is $105,000 but can be less. In October, the IRS will announce the limit for 2025.
To qualify as a QCD, the IRA custodian must make the check payable to the charity. If the distribution is made to the taxpayer, who then writes a check to the charity, this is not considered a QCD and the taxpayer will need to report the amount of the distribution as reportable taxable income but may be able to claim a charitable contribution as an itemized deduction. Not all taxpayers will have sufficient amounts of deductions to qualify for itemization of these deductions. The individual donor must get a tax receipt from the charitable organization confirming the contribution before filing their income tax returns.
It is up to the taxpayer to determine if the charity qualifies for QCD treatment. As a general rule, if a contribution to a charity is eligible as an itemized charitable deduction, it is likely eligible for QCD treatment. It is best to check with a tax professional first. QCDs and charitable contributions sound a lot alike, but they are two separate and different transactions having different tax consequences.
There are two distinct tax advantageous to a QCD. First, the taxpayer is not required to pay taxes on the amount of the QCD. This amount is excluded from taxable income. Second, the amount of the QCD is applied against the annual RMD and the taxpayer is not required to withdraw the amount of the RMD. Thus, the QCD is not included in taxable income. Charitable contributions must meet the requirements of itemized deductions and can be subject to limits on deductions that can be made.
If you are subject to RMDs from your IRA and you also make regular annual contributions to charities, it may be to your advantage to look into utilizing QCDs. The use of a QCD may provide greater tax benefits to you.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. To the extent this material concerns tax matters; it is not intended or written to be used by a taxpayer for purposes of avoiding penalties that may be imposed by law.
