Giving from your IRA? How Qualified Charitable Distributions work

Giving from your IRA? How Qualified Charitable Distributions work

Are you a generous giver? Do you have an IRA account? 

Are you over 70 ½ years old and withdrawing your Required Minimum Distribution (RMD)? 

Good news! You can use a Qualified Charitable Distribution (QCD) to give more efficiently while lowering your taxes.  

What’s a QCD? It’s when you give all or part of your required minimum distribution directly to a nonprofit. Instead of receiving that RMD as income—and paying taxes on it—you can transfer it tax-free to your favorite charity (up to $100,000/year). 

Giving from your IRA (instead of your checking or savings account) lets you avoid paying taxes on that distribution. The standard deduction is so much higher with the new tax laws that many retirees no longer itemize their deductions. Therefore, QCDs are a powerful way to continue enjoying a tax benefit, even if you’re not itemizing.

Here’s how to make QCDs work for you—and your nonprofit of choice:

  1. Work with your financial advisor to complete the paperwork directing your IRA’s custodian (like Fidelity or Schwab) to transfer all or part of your RMD to your favorite charity.
  2. Alert the charity that a check will be coming directly from your IRA’s custodian. Just like other donations, upon receipt of the check, the charity should send an acknowledgment of the donation stating that no goods or services have been received in exchange for the contribution. File that paperwork away for tax season!
  3. Work with your CPA to report the QCD properly on your taxes. You need to inform the CPA, or they won’t know that this happened. Qualified Charitable Distributions cannot also be counted as itemized charitable deductions, so make sure your CPA is not double counting your donations.

A side note for those of you who have used a donor advised fund: The IRS won’t let you send your RMD directly to a donor advised fund unless it’s a special type of fund, designated for a single charity only. This is a more complicated QCD transaction, but we’re happy to help you make it happen if it fits your giving plans.

Interested in more ways you give both generously and wisely? Talk to one of our fee-only financial advisors!

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