5 Things To Know About Qualified Charitable Distributions (QCDs)

Benjamin Haas |

For those who have reached the age 72 milestone with taxable retirement dollars set aside, the IRS is knocking on your doorstep for some taxes to finally be paid on distributions they require you take. In their eyes, you’ve deferred taxation on these savings long enough, and it’s time to start taking this money and paying taxes. It’s called a Required Minimum Distribution, or RMD.

But what if you don’t feel you need to take money out of savings for your living expenses? What if having to pay these taxes really bothers you? And what if you regularly give to charity? You could consider a Qualified Charitable Distribution or QCD.

A QCD is a way to make a charitable tax-free transfer directly from an IRA to an approved public charity, and in doing so, avoid the taxes you otherwise would have had to pay on your distribution. Hence, if avoiding taxes and helping charity are two of your goals, then in this case, you could have your cake and eat it too. The rule makes it easier to engage in proactive charitable giving strategies that help to minimize the tax bite of an IRA’s Required Minimum Distribution (RMD) obligations.

Obtaining the tax benefits for doing a QCD from an IRA to a charity requires meeting very specific requirements though. Here are 5 things for you to know about a QCD:

1.    There is a minimum age limitation – you must be at least 70.5 years old (even before the RMD phase of life) to make this tax-free transfer.
2.    There is a maximum dollar amount limitation - $100,000 per year, per individual.
3.    You HAVE to execute a QCD before taking your RMD – A QCD must be done before taking the remainder of your RMD to avoid the taxation on the QCD amount.
4.    You are only allowed to contribute to certain types of public charities – this renders private foundations, donor-advised funds, and charitable trusts all ineligible.
5.    Finally, the check cannot be made payable to you - this is the most stringent requirement, though also the easiest to satisfy. For an IRA distribution to qualify as a QCD, the check must be made payable directly to the charitable entity.

Proactive tax planning is a key component of retirement planning, especially when charitable giving is part of your legacy plan. If you haven’t considered a QCD before or want to learn more about how charitable giving could fit your plan, give us a call. We’re here to align your personal values, vision and wealth….and hopefully help you save on some taxes too!

By: Holly Hinkle
Financial Planning Associate


Investment Advice offered through Great Valley Advisor Group, a registered investment advisor.
This information is not intended to be a substitute for individualized tax or legal advice. We suggest you discuss your specific situation with a qualified tax or legal advisor.

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