Qualified Charitable Distribution (QCD): Rules and Tax Benefits

A **Qualified Charitable Distribution (QCD)** is a direct transfer of funds from your IRA to a qualified charity. The distribution is **excluded from your taxable income** - you never pay tax on it.

• Available to IRA owners age 70.5 or older
• Money goes directly from IRA custodian to charity
• Not included in your taxable income (unlike normal IRA distributions)
• Counts toward your Required Minimum Distribution (RMD)
• Limit: $105,000 per person per year (2026)

To qualify as a QCD, you must follow specific IRS rules.

• **Age requirement:**
• Must be 70.5 or older at time of distribution
• Note: This is different from RMD age (73)
• Can start QCDs before RMDs begin
• **Account types that qualify:**
• Traditional IRA
• Inherited IRA (if you're 70.5+)
• Inactive SEP-IRA or SIMPLE IRA
• **Account types that do NOT qualify:**
• Active SEP-IRA or SIMPLE IRA
• 401k, 403b, 457 plans (must roll to IRA first)
• Roth IRA (no tax benefit since already tax-free)
• **Distribution requirements:**
• Must go directly from IRA custodian to charity
• Cannot go through you first (check must be payable to charity)
• Charity must be 501(c)(3) public charity
• Must receive written acknowledgment from charity
• **Annual limits (2026):**
• $105,000 per person (indexed for inflation)
• $210,000 for married couple (each spouse can do $105k)
• Excess over limit is taxable ordinary income

QCDs provide multiple tax advantages that make them superior to normal charitable donations from IRA funds.

• **Benefit 1: Excluded from taxable income**
• QCD is not included in your AGI (Adjusted Gross Income)
• Normal IRA distribution + charitable deduction = included in AGI
• Lower AGI can have cascading benefits
• **Benefit 2: Avoids higher Medicare premiums**
• IRMAA (Medicare Part B and D surcharges) based on AGI
• QCD doesn't increase AGI, avoiding IRMAA thresholds
• Can save $1,000-6,000/year in Medicare premiums
• **Benefit 3: Avoids Social Security taxation**
• 85% of Social Security can be taxed if income exceeds thresholds
• QCD doesn't count toward these thresholds
• **Benefit 4: Works with standard deduction**
• You get tax benefit even if you don't itemize
• Normal charitable donation requires itemizing (most take standard deduction)
• **Benefit 5: Not subject to AGI limits**
• Cash donations limited to 60% of AGI
• QCD has no AGI limit (just $105k absolute limit)

One of the most powerful uses of QCD is satisfying Required Minimum Distributions without increasing taxable income.

• **RMD basics:**
• Must begin at age 73 (or 75 if born 1960+)
• IRS requires you to withdraw minimum amount each year
• Failure to take RMD = 25% penalty (reduced to 10% if corrected quickly)
• **How QCD satisfies RMD:**
• QCD counts toward your annual RMD requirement
• Can use QCD for part or all of your RMD
• If RMD is $40,000 and you make $15,000 QCD, you only need $25,000 additional distribution
• Can even satisfy entire RMD with QCD (up to $105k limit)
• **Timing matters:**
• RMD calculated based on 12/31 prior year balance
• QCD reduces IRA balance, reducing future RMDs
• Make QCD early in year to maximize tax benefit

Not all charities qualify for QCDs. The rules are more restrictive than normal charitable donations.

• **Qualified charities (QCD allowed):**
• Public charities with 501(c)(3) status
• Churches, synagogues, mosques
• Educational institutions
• Hospitals and medical research organizations
• Public foundations
• **NOT qualified for QCD:**
• Donor-advised funds (DAF) - explicitly prohibited
• Private foundations
• Supporting organizations
• Charitable gift annuities (partial exception - complex rules)
• Charitable remainder trusts
• **Verification:**
• Charity must provide written acknowledgment
• Letter must state no goods/services received in exchange
• Keep records for tax return (custodian reports on 1099-R)

Follow these steps to ensure your QCD is properly executed.

1. 1**Verify eligibility:** Confirm you are age 70.5 or older
2. 2**Choose qualified charity:** Verify 501(c)(3) public charity status (IRS Tax Exempt Organization Search)
3. 3**Contact IRA custodian:** Call or log into Fidelity, Vanguard, Schwab, etc.
4. 4**Request QCD distribution:** Specify "qualified charitable distribution" and charity name/address
5. 5**Ensure check payable to charity:** Check should be made out to charity, not you
6. 6**Delivery method:** Can be sent to you to forward, or directly to charity
7. 7**Track toward RMD:** Inform custodian you want QCD to count toward RMD
8. 8**Obtain acknowledgment:** Get written receipt from charity (required for amounts $250+)
9. 9**Report on tax return:** Form 1099-R will show distribution; you report as QCD on Form 1040
10. 10**Keep records:** Save acknowledgment, 1099-R, and custodian confirmation for at least 3 years