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  • Writer's pictureMark Fonville, CFP®

What Are QCDs and Why Do They Matter?

Updated: Nov 4, 2023

What are QCDs and Why Do They Matter?

Charitable donations play a significant role in many people’s financial lives.

When you give, you understand that offering time, talent, and resources to a cause you care about can enrich and rejuvenate your life.

Along with the personal and social benefits, there are also many tax benefits to maximize your charitable efforts. Even though your primary purpose in giving is to help further a cause you care about, it makes sense to do it in the most tax-advantaged way.

While most people donate to charities by giving cash or writing a check, this method overlooks more tax-efficient options, such as qualified charitable distributions or QCDs.

In this article, you'll learn the features and benefits of a qualified charitable distribution to help maximize your charitable donations and reduce taxes.

If you want to know if you are eligible to make a QCD, download this free guide.

What are Qualified Charitable Distributions?

A QCD is a donation made directly from an IRA to a qualified charity.

QCDs are beneficial for retirees as it allows them to donate all or a portion of their required minimum distributions (RMDs) directly to the qualified charity of their choice. This vehicle minimizes their annual taxable income and maximizes their regular donation strategy.

Generally speaking, you can donate all or a portion of your RMD, up to $100,000.

What are the QCD rules?

Like all strategies with a tax benefit, there are specific rules you have to follow.

The single most important item to be aware of is that to qualify as a QCD, the distribution must be made directly from your IRA to the qualified charity. You can’t take the distribution as cash, or a check made out to you, and then donate to the charity.

Your IRA custodian will need to make the check out directly to the charity.

You must have a traditional IRA, inherited IRA, SEP IRA, or Simple IRA for the QCD strategy to work. You can't do a QCD from a 401k, and you must be 70 ½ years old. If the IRA (SEP IRA or SIMPLE IRA) is actively receiving employer contributions then you can't do a QCD.

QCDs are limited to $100,000 for each person. If you are married, you and your spouse can each make a $100,000 QCD from your own IRA for a total of $200,000.

Remember, a QCD facilitates the donation of your RMDs to offset taxable income. While you can donate more than your annual RMD (so long as it’s below the $100,000 threshold), the excess amount doesn’t roll over and can’t count for your next year’s deduction.

Before you donate more, consider how your gift fits into a multi-year strategy. To take full advantage of the deduction, it could make sense to spread the donation over several years.

Your donation must be to a qualified 501(c)(3) charity. Private foundations, supporting organizations, and DAFs don't count.

By initiating a QCD, you can’t claim the value of the distribution as a separate charitable deduction. Keep in mind that a QCD isn’t a taxable distribution, so deducting it would result in a double benefit. However, since a QCD isn’t a deduction, you don’t have to itemize to benefit from it. That's significant if you take the standard deduction.

The SECURE Act pushed the maximum age to contribute to an IRA from 70 ½ to 72. This presents a special circumstance to be aware of if you plan to take advantage of the ability to contribute to an IRA after age 70 ½. Any contributions you make into your IRA after age 70 ½, reduce the amount you can donate as a QCD, and that reduction does carry forward.

Again, work with your advisor to plan how these changes will impact your QCD and RMD strategy over several years.

How does this giving strategy add value?

Reducing taxable income may help decrease federal tax liabilities, which is certainly a plus, but what a lot of people don't know is that lower taxable income could also lead to additional tax savings.

Some of the main benefits of a lower taxable income are reducing taxes on Social Security as well as Medicare Part B and IRMAA surcharge since these elements are based on your taxable income. Part B Surcharges can range from $0 to $347 extra per month and Part D from $0 to $76.40 extra per month. As you can see, reducing your taxable income with a QCD can have a cumulative effect on many other aspects of your financial plan.

Paying less in these areas frees up money to donate more, reach a goal, pay off debt, or even improve your lifestyle.

As part of a planning strategy, keep in mind the CARES Act suspended RMDs for 2020, so if you are planning to make a one-time donation, you may want to wait until January 2021. Even if you normally make a donation, but it’s below the QCD limit, it could make sense to make this year's and next year’s normal donation in 2021 so you can reduce next year's RMD further.

There are many ways that a QCD can benefit you, and in turn the causes you care about. Multi-year QCD planning could help you take full advantage of tax reductions and significantly increase the value of your donation.

Can a Qualified Charitable Distribution improve your giving plan?

Download this helpful guide to see if you are eligible to make a QCD.

If you have questions about how QCDs could fit into the bigger picture for you contact us, and we’ll help assess if it’s right for you and how to best incorporate QCDs into your plan.

Mark Fonville

Mark Fonville, CFP®

Mark is a CERTIFIED FINANCIAL PLANNER and advises individuals and families age 50 plus on retirement income planning, tax planning, and investment management strategies. He has over 18 years of experience and is President of Covenant Wealth Advisors, an award winning wealth management firm in Richmond and Williamsburg, VA.



Covenant Wealth Advisors is a fee-only, registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.

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