A Qualified Charitable Distribution (QCD) is a direct transfer of funds from your Individual Retirement Account (IRA), payable directly to a qualified charity, as described in the Internal Revenue Code. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met.
Key points about QCDs:
- You must be 70½ or older to be eligible to make a QCD.
- QCDs are limited to the amount that would otherwise be taxed as ordinary income. This excludes non-deductible contributions.
- The maximum annual amount that can qualify for a QCD is $100,000. This applies to the sum of QCDs made to one or more charities in a calendar year.
- For a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
- The funds must be transferred directly from your IRA custodian to the eligible charity. If the IRA owner withdraws funds and then donates them, the transaction does not qualify as a QCD.
The major benefit of making a QCD is that the amount distributed is excluded from taxable income, which differs from regular withdrawals from an IRA, even if they are used to make charitable contributions. This can potentially reduce your taxable income and the tax rate imposed on other income.