Qualified Charitable Distributions

Thinking of donating your IRA to charity?

Senior couple discussing whether to donate some of their IRA savings to charity.
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Owners of individual retirement accounts (IRAs) age 70½ years old or older can contribute some or all of their IRA to charity.

A Qualified Charitable Distribution (QCD) is a distribution from an IRA directly to an eligible charity. The key benefit of a QCD is that the distribution amount is not included on the Form 1040 as income. On the flip side, the QCD amount is not included as part of the person's itemized deduction for charity.

QCDs can come out of traditional IRAs. However, QCDs cannot come out of SEP IRA or SIMPLE IRA plans. It's possible to take a QCD out of a Roth IRA, but as Roth IRAs can already be tax-free, it seems the more tax-efficient move would be to use a traditional IRA to fund the QCD.

Because income from a charitable distributions "bypasses" the 1040, QCDs can be utilized to help keep a person's adjusted gross income or taxable income within a desired range. This can help prevent, for example, income from reaching thresholds for the net investment income tax or the phaseout range for itemized deductions.

Alternatively, QCDs can benefit seniors who take the standard deduction rather than itemize. Whenever someone takes the standard deduction, there is no tax benefit to making a donation to charity. So for non-itemizers, donating to charity via a direct transfer out of an IRA is the only way to get a tangible tax benefit out of their donation.

Furthermore, QCD are counted towards a person's required minimum distribution (RMD) for the year. So for IRA owners who have to take RMDs, but don't really want or need the money, QCDs are a good way to distribute the minimum required amount out of the IRA.

If an IRA owner has basis in a nondeductible traditional IRA, QCDs are considered to come out of taxable IRA funds first.

Normally, distributions are split proportionately between taxable funds and nontaxable basis.

To qualify, the person must be at least age 70.5 years old at the time of the distribution, and the funds must be directly transferred from the IRA custodian to an eligible charity. The maximum amount that can be donated through a qualified charitable distribution is $100,000 per year per IRA owner.  

An eligible charity includes 501(c)(3) organizations and houses of worship. Donor advised funds and so-called supporting organizations are not permitted to receive QCDs on a tax-advantaged basis. In previous guidance, the IRS said it's acceptable procedure for the IRA custodian to make a check payable to the charitable organization and have the IRA owner deliver the check to the charity (Notice 2007-7, section IX).