Over the last several years, there have been many changes to the individual retirement account (IRA) landscape.  Possibly the most overlooked new tool for IRA owners is the qualified charitable distribution, or QCD.  A QCD is a withdrawal from an IRA made directly to a charitable organization at the IRA owner’s request.  It is truly a “win-win” situation: the charity receive a donation and the IRA owner is not required to include the amount of the QCD in their ordinary income for the tax year. 

An IRA owner can make one or many QCDs each year, and many individuals now use their IRA as a primary source of charitable giving.

Assume Michael is 73 and has a required minimum distribution (RMD) of $50,000 this year.  Michael does not need the full amount of his RMD to support his living expenses, so instead of depositing the full $50,000 in his checking account, Michael works with his IRA custodian to make qualified charitable distributions of $25,000 to Catholic Charities and $5,000 to his parish.  In addition to sharing his treasure, Michael reduces his ordinary income from the IRA to $20,000 while still satisfying his full $50,000 RMD.

What are the requirements to make a QCD? 

The charity must be a 501(c)(3).

The IRA owner must be at least age 70.5. 

QCDs are limited to the amount that would be taxed as ordinary income, and the annual QCD amount is capped at $100,000.  If Michael’s RMD was $150,000, he would only be able to make QCDs up to $100,000.  The remaining $50,000 would count as ordinary income. 

The IRA owner must keep track of his or her QCDs and provide that information to their tax preparer.  Some IRA custodians will offer statements or reports to make this process easier, but it is not a requirement. 

If you are in search of a way to maximize your charitable giving, the QCD may be the perfect opportunity!  Start the conversation with your tax advisor well before year end to allow time to coordinate with your IRA custodian. 

Note: On July 19, a bill was introduced in the House that could waive the 2022 RMD requirement.  As of the time of this writing, the bill has not moved forward, but it is possible RMDs will not be required for 2022. 

By Allegra Kincaid, Vice President and Trust Officer at Midwest Trust Company. Allegra is also a member of CCKCSJ’s Planned Giving Counsel. Her email is: allegra.kincaid@midwesttrust.com

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