5 Facts About QCD Qualified Charitable Distributions
Qualified Charitable Distributions (QCD): A Tax-Smart Way to Give From Your IRA After 70½
If you’re age 70½ or older and regularly support charitable organizations, a Qualified Charitable Distribution (QCD) may be worth understanding. A QCD allows eligible IRA owners to transfer funds directly to a qualified charity, potentially excluding that distribution from federal taxable income when reported properly.
Eligibility requirements, contribution limits for 2026, the differences between a QCD and a traditional charitable deduction, inherited IRA considerations, and why QCDs may be a practical tax planning tool for many charitable donors are mentioned in the video.
There are some limitations: a QCD cannot be made directly from employer retirement plans such as 401(k)s or 403(b)s.
As with any tax-related strategy, individual circumstances matter, and proper reporting is essential. Mullooly Asset Management is not a tax preparer nor specialist in providing legal or tax advice.
Takeaways:
- A QCD does not generate taxable income to the IRA owner
- But a QCD does not generate a tax deduction, like a traditional gift o a charity.
- A Qualified Charitable Distribution (QCD) sends money directly from an IRA to a qualified charity.
- The QCD is available only to individuals age 70½ or older using eligible IRA accounts.
- A QCD can provide an alternative to claiming a charitable deduction for many taxpayers.
- Employer retirement plans must generally be rolled into an IRA before a QCD can be considered.
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5 Facts About QCD Qualified Charitable Distributions – Transcript
Do you make charitable contributions? If you do, there’s a tool you should know about called a qualified charitable distribution, or QCD.
It’s actually been available for 20 years.
It was made a permanent part of the tax code a few years later in 2016.
What is a qualified charitable distribution, or QCD?
That is a transfer from your IRA to a qualified charity.
Money goes from your IRA custodian, think your bank or your broker, and it goes to an organization, not to you.
Technically, we know of a custodian that actually mails a check to you, but it’s not made out to you.
It’s actually made out to the charity.
But it doesn’t get taxed to you.
This is the beauty of these qualified charitable distributions.
The full amount of this distribution, including the QCD, will appear on your 1099-R the following year.
However when it’s properly reported on your federal tax return, the QCD portion gets excluded from your taxable income.
It doesn’t count as income for federal tax purposes, but only if your tax preparer handles this correctly.
The 1099-R, reports the gross distribution, and your federal return on line four is where the exclusion gets taken.
I think a really important distinction to make, though, is a charitable deduction reduces your tax after the fact, after you make the contribution.
A QCD is going to prevent the tax from arising in the first place.
You have to be age 70 and a half or older at the time of the distribution.
The eligible accounts that you can make a QCD from, it’s got to be a traditional or contributory IRA, a, a rollover IRA, or an inherited IRA, which opens up a whole new avenue of ways to make contributions.
The receiving organization has to be a qualified 501[c][3] public charity.
So things like donor-advised funds and private foundations, are not going to qualify for QCDs.
The limit in 2026 is $111,000 per person per year.
That gets indexed for inflation out into the future.
So married couples where both spouses have their own IRAs and both are 70 and a half or more, or older, each spouse can make a QCD of up to $111,000 from their own account, $220,000 combined.
The only catch to that is you can’t pool that money.
You can’t take $200,000 from one IRA and the remaining $22,000 from the spouse’s IRA.
Each person can go up to 111.
You can’t pool that money together.
So let’s walk through a scenario.
Suppose you take the traditional approach where you take your required minimum distribution, your RMD, from an IRA.
You pay tax because that’s going to be a taxable distribution.
You pay your taxes, and then you write a check out to your favorite charity, and then claim the deduction on Schedule A of your tax return.
A couple of problems that we’re running into.
The first problem is when it comes to itemizing.
A lot of people just simply can’t itemize anymore.
The standard deduction today is now more generous than it ever was in the past.
And so there are plenty of people that no longer itemize on their taxes.
And so they may make a really generous contribution to their favorite charity.
But they’re not getting a write-off for it anymore.
That was tweaked a little bit last year with the One Big Beautiful Bill Act.
Non-itemizers can now deduct up to $1,000 in charitable CASH contributions.
So a married couple can do $2,000, without even itemizing.
It’s a small improvement.
But for any larger type of gifts, more than $1,000 per person, the qualified charitable distribution remains a pretty efficient tool to consider using.
The second problem that we run into when you’re trying to do it the traditional way…….
…where you pay your taxes and then try and get a write-off for your contribution.
The second one is for even those people that DO itemize, what you recover through your write-off, through your deduction, will almost always be less than the TAX that you’re paying on the distribution from your IRA.
So it’s a cycle of paying, and then you’re only partially recovering, the gift that you made.
The math never really tends to work out.
One of the points I mentioned earlier is that you can make a qualified charitable distribution from an inherited IRA.
This is worth talking about. You know, “what would mom do?”
What would mom have done, with this money that she could no longer use?
Or suppose you’re trying to drain an inherited IRA?
And you’re taking one-tenth out per year — so that in year 10 it’s fully drained.
The problem is, if the market continues to move up in the future, you never — that math doesn’t work out either.
So you may get to a point where you have a large amount left in years eight, nine, or ten.
The beneficiary, that’s you, has to be 70 and a half or older (to make a QCD).
But you get to a point where you’re taking a lot of money out of this inherited IRA.
You’ve got to do something with it.
“Hey, can I make a qualified charitable distribution from a 401k?”
No.
Can’t do it.
They’re only available from IRAs.
So you can’t make a qualified charitable distribution from a 401k, a 403b, or a deferred comp plan.
Can’t do it.
Funds that have been in a former workplace retirement plan would need to be rolled over into an IRA — before making a qualified charitable distribution.
A qualified charitable distribution might be one of the more practical — and maybe one of the more tax-efficient — tools available for folks who are over age 70 and a half and in the habit of making sizable gifts to their favorite charity.
Questioning whether a qualified charitable distribution, a QCD, fits for your situation?
This is EXACTLY the kinds of conversation that we have going on with our clients.
In the next video, we’re going to show a glaring mistake that folks overlook with qualified charitable distributions, QCDs.
Watch that one next.
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