Five of the Most-asked Questions About Qualified Charitable Distributions
Qualified Charitable Distributions, or “QCDs,” are a very popular financial and charitable planning tool. At the same time, QCDs can also be the source of some confusion.
Here are answers to the questions we’ve been asked most frequently this year. Please do not hesitate to reach out to OCF for assistance.
“Is an IRA (Individual Retirement Account) the only eligible source for Qualified Charitable Distributions?”
Short answer: Almost.
Long answer: 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. Notably, a QCD is generally permitted from a Roth IRA as well, though most distributions from a Roth IRA are already tax-free and therefore QCD rules wouldn’t be relevant anyway.
“What is the difference between a QCD and an RMD?”
Short answer: Quite a bit! But a QCD can count toward an RMD.
Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 73. 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?”
Short answer: Yes–within a very narrow age window.
Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. The required date for starting RMDs was shifted recently from 70 ½ to 72 and then shifted further from 72 to 73 (which is better for taxpayers who want to delay taxable income). Corresponding shifts were 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 in Publication 590-B in its FAQs publication.
“Can I direct a QCD to my fund at OCF?”
Short answer: Yes, if it’s a qualifying fund.
Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at OCF can receive QCDs. These funds include pooled funds, designated funds, unrestricted funds, field-of-interest funds, and scholarship funds.
“How much can I give through a QCD?”
Short answer: $100,000 per year.
Long answer: A Qualified Charitable Distribution permits you (and your spouse from your spouse’s own IRA or IRAs) to transfer up to $100,000 each year from an IRA (or multiple IRAs) to a qualified charity. So, as a married couple, you and your spouse may be eligible to direct up to a total of $200,000 per year to charity from your IRAs and avoid significant income tax liability.
Our philanthropic advisors around the state would love to talk more with you. We offer many different types of funds, depending on what you would like to accomplish with your giving. Our investment program, administrative support, personal service and expertise in Oregon will ensure that you can experience the joy of impactful giving without worrying about details.