Philanthropists have many tools through which to give to charities in the United States, but one in particular is popular for those of a certain age with access to retirement account income they may not need. Making a Qualified Charitable Distribution (QCD) from your Individual Retirement Account (IRA) is a safe, easy, and tax-effective way of giving to charity without affecting your taxable income later in life
QCDs are gaining in popularity and CAF America often receives questions about how they work, especially in the context of international giving. See below the top 5 questions our donors have asked about QCDs.
What is a Qualified Charitable Distribution (QCD)?
If you have a traditional (non-Roth) IRA, at age 73 you are required to start taking money in disbursements called Required Minimum Distributions (RMD), which are counted as taxable income. As part of the SECURE Act 2.0 this age limit was increased from 70½ as of January 1, 2023, and will be raised to 75 starting in 2033. A QCD is a distribution from your retirement account that goes directly to charity, instead of to yourself. The benefit of making a QCD is that it can be counted towards satisfying your annual RMD and it does not add to your Adjusted Gross Income (AGI). This means that your gift does not need to be itemized as a typical donation would be.
QCDs were made permanent law in 2015 with the passage of the Protecting Americans from Tax Hikes (PATH) Act, and updated through the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and SECURE 2.0 in 2022.
Can I make a QCD?
The following criteria apply to making a QCD:
- You must be 70 ½ or older
- You must have a retirement account (most IRAs can make QCDs)
- The maximum annual amount that can qualify as a QCD is $100,000, and the sum of multiple QCDs within the same year cannot exceed $100,000. Any amount more than $100,000 does not qualify towards offsetting your RMD nor does it roll over to the next year. Note this amount may be indexed to inflation for years beyond 2023.
- If you file jointly with a spouse, you may both make QCDs up to $100,000
See more context from the IRS
Why would I make a QCD instead of making my normal charitable gifts?
If you withdraw funds from your retirement account and then give that money to a charity, the withdrawal itself would be considered a taxable event and would add to your AGI, increasing the amount you owe in taxes. You could still claim charitable tax benefits for your direct gift, but this may not fit within your tax plan. Especially when you have hit your AGI limits for deductions within a certain year, disbursing funds directly to a charity from your IRA can unlock more giving while avoiding an increased tax burden.
Is a QCD right for you? Consult your tax planner to learn more.
Can I make my QCD to my Donor Advised Fund (DAF)?
QCDs cannot be made to DAFs. However, since the sponsoring organization of your DAF is an exempt 501(c)(3) organization you may still be able to make your QCD to that charity as long as it is not going into a DAF. Opportunities for this could include general support for the charity, or for other programs they may maintain outside of their role as a DAF sponsor.
Qualified Charitable Distributions can also not be made to private foundations, split-interest charitable trusts, or supporting organizations.
Can I use my QCD for international giving?
Yes, using your QCD to support international charitable projects is possible!
Some qualified US 501(c)(3) charities specialize in supporting nonprofits outside of the US. Your QCD may be used to support foreign charities by giving to one of these US charity intermediaries, such as CAF America.
QCDs may only be made to charities we have already validated and have active grant agreements with, or charities that have established a Friends Fund at CAF America. A Friends Fund is a restricted account opened by CAF America for the purpose of supporting the activities of a designated foreign charity. The fund is fully restricted for grantmaking to that charity to support their charitable activities. QCDs made to charities without Friends Funds must support restricted grants to charities that are considered eligible as part of our Global Charity Database.
So if you’re considering making a QCD now, or in the future, be sure to reach out to us to learn more about the ways your QCD can support charitable efforts across the globe. You may reach me at email@example.com, or give us a call at 202-793-2232.
DISCLAIMER: Neither CAF America nor the stated author of this blog are certified to give qualified tax advice. The contents of this article are informational only, and do not serve as qualified tax advice. If you have questions regarding your tax strategy, we encourage you to consult a qualified tax professional.