What Are Qualified Charitable Distributions?

What are qualified charitable distributions, and why are they important? To understand why qualified charitable distributions (QCDs) are so important, you must first look at required minimum distributions (RMDs).

RMDs are a requirement for retirees with traditional IRAs, 401(k), and other qualified retirement accounts. Starting in 2024, individuals must take RMDs from these accounts every year beginning at age 73, regardless of whether they need the funds. This can significantly increase their taxable income, potentially pushing them into higher tax brackets or triggering phaseouts.

QCDs are an important and unique tool that retirees can use to avoid needlessly increasing their taxable income, possibly increasing their bracket, or triggering any phaseouts—all while helping out the causes closest to their hearts. Unlike RMDs, which are mandatory, QCDs are voluntary and can be used to offset RMDs.

Keep reading to learn more about qualified charitable distributions. If you or a loved one is curious about how QCDs can count towards your RMDs and would like to discuss qualified funds at Greater Houston Community Foundation, send us a message today. 

Key Insights

• A QCD is a direct transfer of funds from an IRA to a qualified charity, available to individuals aged 70 ½ years or older.
• A QCD can not be made to a donor advised fund.
• A QCD can be made to Field of Interest and Designated Funds at Greater Houston Community Foundation.
• QCDs can satisfy required minimum distribution (RMD) requirements.
• QCDs may reduce taxable income and lower adjusted gross income.
• QCDs can be made from traditional IRAs, inactive SEP, and SIMPLE IRAs.

Table of Contents

• What are QCDs?
• What charities qualify for QCDs?
• Benefits of making QCDs
• Claiming a QCD on your taxes
• A few important QCD rules
• QCD FAQ

What is a qualified charitable donation?

Qualified charitable distributions are direct transfers of funds from retirement accounts (IRAs) to qualified charitable organizations. 

QCDs are useful because they allow individuals aged 70 ½ years or older to donate up to $105,000 directly from their IRAs every year and, therefore, avoid taking that money as an RMD, which would count as taxable income. 

Seniors who meet the age requirement can make QCDs thanks to the PATH Act (2015), which permanently extended the temporary provision allowing individuals to execute these tax-free distributions by donating their retirement funds directly to charity.

What charities qualify for a QCD?

Whether you’re interested in giving to organizations, providing relief after natural disasters, or contributing to Houston scholarships, you should be able to find a way to do so by taking advantage of QCDs. 

To qualify for a QCD, an organization must be a 501(c)(3) that can receive tax-deductible contributions. Keep in mind that not all charities are eligible to receive QCDs. Some types of charities which may not qualify for QCDs include:

• Donor-advised funds*
• Private non-operating foundations
• Supporting organizations

To determine whether or not the charitable organization you wish to support can accept your qualified charitable donation, as well as whether or not your retirement account is eligible for donating, you should always consider speaking with a philanthropic professional to help make sure you’re doing what’s best for your family and the communities you wish to support. 

*Although the IRS does not permit QCDs to be made to donor advised funds, you can likely make distributions to designated funds and field-of-interest funds available at Greater Houston Community Foundation.

Continue reading: What is a donor advised fund?

Why is a QCD better than a charitable deduction?

In other words, why take advantage of QCDs? It may seem strange that it would be preferable to distribute funds to charitable organizations directly rather than gift with withdrawn money and claim charitable deductions. However, taking advantage of QCDs has several potential benefits for donors. 

Benefits of making qualified charitable distributions

• Because QCDs are not considered taxable income, taking advantage of them may significantly reduce your adjusted gross income (AGI) and, therefore, reduce your overall tax liability. 
• QCDs fulfill the requirements for taking RMDs. Instead of taking a distribution you do not need, you can strategically meet your RMD obligations without incurring extra taxable income. 
• Distributing QCDs is much more straightforward than donating, itemizing, and claiming your deductions individually. 
• QCDs are not counted toward maximum deductible amounts on itemized giving for your year-end taxes.
• Because these donations go directly to the charitable organizations you care about most, QCDs have huge potential to make an impact. 

How do I claim a QCD on my taxes?

Although QCDs themselves are not taxable income, they still need to be reported on your taxes. Luckily, claiming a qualified charitable distribution is a very simple process. 

1. 1099-R is the qualified charitable distribution form on which you need to record the amount distributed. QCDs from non-inherited IRAs are counted as normal distributions, while those from inherited IRAs are reported as death distributions.
2. Double-check that although the QCD amount is included on your tax return, the taxable amount is listed as zero. 
3. Always keep records of your charitable contributions and confirmations from the organizations to whom you donate. You should retain proof of your donation for several years in case of an audit.  

Before you donate, you should speak to a qualified tax advisor to find out if your IRA and the charities you would like to support qualify for QCDs. Need help with the tax implications of your charitable giving? Greater Houston Community Foundation will partner with your professional advisors to create a plan that fits your unique needs. 

What are the IRS rules for qualified charitable distributions?

We’ve already touched on some of the following qualified charitable distribution rules, but these specific restrictions and limitations bear repeating. 

1. Age restrictions. Donors must be at least 70 ½ years of age to make qualified charitable distributions. 
2. Annual limits in 2024. The individual annual limit for QCDs is $105,000.
3. Direct transfers. Distributions must be made directly from an eligible account to a qualified charity. They do not qualify as a QCD if they are distributed to the owner as a payment first.
4. Eligible accounts. Not all retirement accounts may be eligible for charitable donations. Typically, traditional IRAs, Roth IRAs, 401(k) plans, 403(b) plans, and certain other retirement accounts qualify.
5. Eligible charities. QCDs must be directed to 501(c)(3) charities, Field of Interest Funds, and Designated Funds. QCDs cannot be transferred to donor advised funds, supporting organizations, or private non-operating foundations. 

Although many rules surrounding qualified charitable distributions are relatively simple, you should always speak with a trusted advisor who is familiar with your financial and charitable giving plans before making decisions with your retirement accounts. 

Qualified charitable distribution FAQ

How much can I give through a QCD? 

You may transfer up to $105,000 individually (potentially $210,000 for you and your spouse) from one or more IRAs to a qualified charitable organization. 

Can I make a distribution or gift to my donor advised fund? 

No, QCDs are prohibited to give to a donor advised fund. 

Can I direct a QCD to my fund at the Foundation? 

While donor advised funds are not eligible recipients for QCD funds, many types of charitable funds are, including Field of Interest and Designated funds. 

Can I make a QCD even if I am not required to take an RMD? 

Short answer: Yes, but only if you are between the ages of 70½ and 72 years old. 

Long answer: The SECURE Act’s adjustment of the required minimum distribution (RMD) age from 70 ½  to 72 has created an anomaly, as the qualified charitable distribution (QCD) age remains unchanged at 70 ½. This discrepancy can be beneficial for taxpayers who wish to make charitable gifts from their IRAs before taking their RMDs, but it may also lead to unintended consequences, such as accelerated income taxation. 

What is the difference between a QCD and an RMD? 

Required minimum distributions (RMDs) are mandatory withdrawals from retirement accounts that are treated as taxable income. Qualified charitable distributions (QCDs), if used correctly, can count towards these mandatory withdrawals in a tax-advantaged manner. 

Can I only use an IRA to make QCDs? 

You can use traditional IRAs to make QCDs, as well as inactive SEP and SIMPLE IRAs. While you can also use a Roth IRA to make a QCD, it is generally not recommended because distributions from Roth IRAs are already tax-free.

Should you be taking advantage of qualified charitable distributions? Greater Houston Community Foundation can help.

If you’re currently subject to required minimum distributions and are not utilizing QCDs as a part of your charitable giving and tax plans, speak to an experienced charitable giving advisor for more information. Although many of the rules surrounding qualified charitable distributions are simple, the eligibility and legality of making donations and compliance with ever-changing IRS regulations can be quite complicated. 

If you’re curious about how QCDs can help you support the causes you’re passionate about while reducing your overall adjusted gross income, contact Greater Houston Community Foundation today at 713-333-2200 or connect with us to start a discussion. 

This website is a public resource of general information that is intended, but not promised or guaranteed, to be correct, complete, and up to date. The materials on this website, including all comments and responses to comments, do not constitute legal, tax, or other professional advice, and are not intended to create, and receipt or viewing does not constitute, nor should it be considered an invitation for, an attorney-client relationship. The reader should not rely on information provided herein and should always seek the advice of competent legal counsel and/or a tax professional in the reader’s state or jurisdiction. The owner of this website does not intend links on the website to be referrals or endorsements of the linked entities.

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• The Importance of Charitable Giving In Financial and Estate Planning
• How to Start a Corporate Philanthropy Program

This website is a public resource of general information that is intended, but not promised or guaranteed, to be correct, complete, and up to date. The materials on this website, including all comments and responses to comments, do not constitute legal, tax, or other professional advice, and is not intended to create, and receipt or viewing does not constitute, nor should it be considered an invitation for, an attorney-client relationship. The reader should not rely on information provided herein and should always seek the advice of competent legal counsel and/or a tax professional in the reader’s state or jurisdiction. The owner of this website does not intend links on the website to be referrals or endorsements of the linked entities.