A qualified charitable distribution (QCD) is a nontaxable distribution made from a taxpayer’s individual retirement account (IRA) directly to a qualified charity. To qualify for this type of distribution, the taxpayer must be at least 70 ½ years old. The maximum amount that can be transferred from an IRA account to a qualified charity is limited to $105,000 for 2024 ($210,000 for married couples filing jointly). The QCD limit is indexed annually for inflation.
One benefit of making a QCD is that it satisfies all or part of an individual’s IRA required minimum distribution (RMD) for the year. For example, if an individual’s RMD is $20,000 and they make a $15,000 QCD, only the difference of $5,000 is required to be withdrawn from their IRA account to meet the RMD.
Another significant benefit of the QCD is that the amount is not includable in taxable income for the individual making the QCD. This benefit could lower the individual’s percentage of Social Security income that is subject to income tax, prevent the individual from being assessed higher Medicare premiums as a “high income beneficiary,” and might even keep the individual in a lower tax bracket. For example, a 75-year-old individual who is single and has a 2024 RMD of $100,000, could make a $100,000 QCD and thereby prevent the full amount from being includable in their 2024 taxable income. However, it is important to note that a taxpayer cannot claim a charitable deduction for any QCD.
Other important points to consider are: since the QCD reduces the IRA account balance, it may reduce required minimum distributions from the IRA account in future years; the money needs to be a direct transfer from the IRA funds custodian to the charity; and before making the QCD, donors should check with the charity to be sure they are qualified to accept QCD’s.
If charitable giving is part of your overall financial plan, a qualified charitable distribution can serve to further your philanthropic goals while reducing your income tax liability.
For more information, contact Rick Gilmartin, CPA, Principal, Tronconi Segarra & Associates LLP, at 716.633.1373 or rgilmartin@tsacpa.com.
