Qualified charitable distributions (QCDs) are a tax-efficient way for individuals who are at least 70½ years old to donate money directly from their individual retirement accounts (IRAs) to eligible charitable organizations. The tax code related to QCDs is found in Section 408(d)(8) of the Internal Revenue Code (IRC).
Under this provision, individuals can exclude up to $100,000 per year from their gross income if it is distributed directly from their IRA to a qualified charity. This exclusion applies to both traditional IRAs and Roth IRAs. QCDs can count towards satisfying the required minimum distribution (RMD) that individuals must take from their IRAs each year once they reach the age of 72.
To be considered a qualified charitable distribution, the following conditions must be met:
1. The distribution must be made directly from the IRA custodian to the eligible charitable organization. The individual cannot receive the funds and then donate them.
2. The distribution must be made to a qualified 501(c)(3) public charity, private operating foundation, or a direct contribution to a 509(a)(3) supporting organization.
3. The individual must be at least 70½ years old at the time of the distribution.
It’s important to note that QCDs are not tax-deductible charitable contributions since they are excluded from gross income. However, they can provide a tax advantage by reducing the individual’s adjusted gross income (AGI), which may have other tax implications such as reducing the amount of Social Security benefits subject to taxation or lowering Medicare premiums.
It is recommended to consult with a tax professional or financial advisor for specific guidance on qualified charitable distributions and their tax implications.
