Qualified Charitable Distributions – What Are They and When Are They a Good Idea?
By: Dean Dorton | June 18, 2021

A qualified charitable distribution (QCD) is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying required minimum distributions (RMDs) for taxpayers over age 70 1/2.
Tax | Wealth & Estate Planning
By Matt Smith, CPA | msmith@deandorton.com and Elizabeth Leatherman, J.D., CPA | eleatherman@deandorton.com
Qualified Charitable Distributions
A qualified charitable distribution (QCD) is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying required minimum distributions (RMDs) for taxpayers over age 70 1/2.
A taxable IRA distribution increases the recipient’s adjusted gross income (AGI), which may increase income taxes and Medicare premiums. In the case of a QCD, the distribution is not included in AGI, and no charitable deduction is allowed. In many cases the substantial increase in the standard deduction levels in recent years has resulted in limited or no tax benefits from charitable contributions. Consequently, QCDs have become more useful as a tax savings tool.
Consider the following two examples in which a QCD is preferable to receiving an RMD and donating a like amount to charity.
Example 1
Facts | Tax results | Primary reasons for the tax savings from the QCD |
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Example 2
Facts | Tax results | Primary reasons for the tax savings from the QCD |
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In limited situations, using a QCD may cost additional taxes. Consider the following example:
Example 3
Facts | Tax results | Primary reasons for the tax increase if a QCD is made |
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Note that our examples may suggest that all of an IRA owner’s RMD may need to be distributed to charity to take advantage of the potential benefits of QCDs. That is not a requirement. An IRA owner may distribute only a portion of the RMD to charity as a QCD, taking the balance as a taxable distribution.
Several requirements must be followed to properly make a QCD. Please consult your tax advisor to help you determine if this could be a good tax planning tool in your situation.
This article was originally published in News & Views (Dean Dorton’s quarterly newsletter).
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