Qualified Charitable Distributions

To make a QCD, you have to be at least age 70 ½. This money is not subject to taxes and won’t be counted as taxable income. Even better, if you meet all the requirements, it will count as your Required Minimum Distribution, or RMD.

That’s important because now beginning at age 73, you must take RMDs on most qualified retirement plans, including a traditional IRA, but you can get around that rule by making a qualified charitable distribution instead.

You can also make a QCD from your SEP IRA if you have one, or a SIMPLE IRA. You can even do it from a Roth, but because no taxes are due on Roth distributions, there’s no advantage to it.

You cannot, however, make a QCD from a 401k or 403b retirement account. You would first have to roll the funds over to a traditional IRA and make the QCD from there.

Also, not every charity is eligible for a qualified charitable distribution. It must be a 501(c)(3) organization. Private foundations are ineligible. It’s a good idea to check with a tax professional to make sure your favorite charity can receive the gift.

Here’s how a QCD can reduce your federal taxes. First, even though it’s a withdrawal from your IRA, it won’t be counted as taxable income, as it would if you simply withdrew those funds from your account.

Second, you don’t have to itemize deductions on your return to make a QCD. That means if the standard deduction of $13,850 for a single filer, or $27,700 for married joint filers is higher, you can still take it, further reducing your federal taxes.

And third, because a qualified charitable distribution can be made instead of a required minimum distribution, it won’t increase your federal taxable income. That’s potentially huge, because often an RMD will push some of your income into a higher tax bracket. You won’t have to worry about that if you make a QCD instead.

Also, you can’t claim a QCD as an itemized charitable donation and there’s an annual limit of $100,000— not a problem for most people.

To sum up, the Qualified Charitable Distribution is a powerful tool that enables you to lower your taxes by reducing your taxable income and it will satisfy your required minimum distribution, potentially keeping some of your income from being taxed at a higher rate.

The QCD is more than just a great way to lower your tax burden. For Christians, it gives us a chance to be more faithful stewards of the resources God entrusts to us. It’s an opportunity to be more generous that you shouldn’t pass up— if you’re able to use it.