Qualified Charitable Distributions

Charitable giving is an important part of many of our lives. As one ages, there are different strategies to consider with regards to methods and timing of giving. One of the best ways to give to charities is directly from IRA’s as a Qualified Charitable Distribution.

A Qualified Charitable Distribution (QCD) is a tax-free transfer of funds from your IRA custodian, payable to a qualified charity. To make a QCD, you must be at least 70 ½ years of age and the maximum annual amount that can qualify is $100,000. Many people choose to donate all or a portion of their Required Minimum Distributions each year to one or a variety of charities, although you can certainly donate more than the required minimum distribution. Keep in mind that the charity must be a 501(c)(3) organization and the donation cannot pass through you or a donor-advised fund first, it must go directly from your IRA to the charity. In addition, QCD’s can only come from IRA’s, not 401(k)’s.

In addition to the benefit of this tax-free distribution not increasing your adjusted gross income, it can also help you avoid the Medicare high-income surcharge or help make less of your Social Security benefits taxable. Keep in mind that you cannot itemize and deduct the QCD, as only one tax-break per transaction can be applied.

Custodians, like Fidelity and Schwab, do not keep track of QCD’s, and therefore it will not show up as a separate line item on your annual 1099-R, it will be reflected as a standard taxable distribution on the tax form. Please keep track of your QCD’s and provide the information to your tax preparer. If preparing the tax return yourself, on line 15 of the 1040, line “a”, write the total distribution for the year, and on line “b” write how much is taxable (for example, if your entire distribution was used as a QCD, you would write “0”). Finally, write “QCD” next to line “b”.

Click here for more information (QCD information at the bottom).

In the past, clients have had to sign individual forms each time they want to make a QCD from their IRA. Fortunately, both Schwab and Fidelity have initiated check writing capabilities in IRA accounts, so you can send checks directly from your IRA to your favorite charities. Please contact me if you’d like to add this feature to your IRA. Our goal is to continue to find new ways to make things easier and advantageous for you in relation to money matters.

Until next time,

Diana Lormand, FPQP™
Director of Client Services

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