Commonly Asked Questions About Qualified Charitable Distributions

Qualified Charitable Distributions (QCDs) are becoming a very popular financial and charitable planning tool, and the good news is you can direct a QCD to certain funds at the Foundation for MetroWest. At the same time, QCDs are increasingly a source of more and more confusion.

A QCD allows individuals who are 70 1/2 years old or older to donate up to $100,000 to one or more charities directly from a taxable IRA, instead of taking their required minimum distribution. The benefit is that the donor may avoid being pushed into a higher income tax bracket and can prevent phaseouts of other tax deductions, although there are some limitations.

Here are answers to some frequently asked questions.

“Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?”

An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free.

“What is the difference between a QCD and an RMD?”

The short answer is that there are a number of differences between the two, but a QCD can count toward an RMD.

Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 72. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of qualified retirement plans (such as IRAs) to certain types of charities. When a taxpayer follows the rules, a QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution.

“Can I make a Qualified Charitable Distribution even if I am not yet required to take Required Minimum Distributions?” 

Yes–within a very narrow age window.

RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs was shifted from 70 ½ to 72 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs).

The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication.

“Can I direct a QCD to my fund at the Foundation for MetroWest?”

As we previously mentioned, yes, if it’s a qualifying fund.

While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at the community foundation can receive QCDs. These funds include designated funds, unrestricted funds, field-of-interest funds, and scholarship funds.

To further discuss how you can support the Foundation for MetroWest through your Qualified Charitable Distribution, please contact Lee Gagen, Director of Development and Leadership Giving at 508-647-2260 or [email protected].

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