What Is a QCD? Qualified Charitable Distribution

By Chris Duderstadt

September 20, 2023

What Is a QCD? Qualified Charitable Distribution

Key Points – What Is a QCD? Qualified Charitable Distribution

  • Figuring Out If You’re Eligible to Take Advantage of QCDs
  • Revisiting Roth vs. Traditional
  • The Relationship Between QCDs and RMDs
  • Reviewing an Example of What a QCD Is and How It Works
  • 4 Minutes to Read | 24 Minutes to Watch

What Is a QCD and Are You Eligible to Make Them?

You may have heard the term QCD (Qualified Charitable Distribution), but what is a QCD? If you’re 70½ or older, charitably inclined, and have money in tax-deferred accounts—such as traditional IRAs—QCDs might be right up your alley. A QCD is a distribution from an IRA that goes directly to a qualified charity. QCDs aren’t taxed and won’t show up on your tax return. Does that sound intriguing? Dean Barber, Bud Kasper, and Corey Hulstein, CPA are going to help us learn a little bit more about what a QCD is.

“When it comes to taxes, the objective is to pay as little tax as possible over your lifetime. QCDs are a tool that can help with paying less in taxes.” – Dean Barber

A Reason to Keep Some Money in Your Traditional IRAs

We’ve published a lot of content lately about Roth IRAs and Roth conversions (converting a traditional IRA to a Roth IRA). There are quite a few pros to getting as much money into the tax-free Roth as possible, but there are also some good reasons to keep some money in traditional. One of them is to do QCDs.

It is possible to do QCDs from Roth IRAs, but it doesn’t really make sense to do so since the Roth money is already tax-free. The funds in your traditional IRAs are tax-deferred, so doing a QCD from a traditional IRA would give you a tax benefit. We should note, though, that QCDs can’t be taken from 401(k)s. Also, QCDs can be made from SIMPLE and SEP IRAs if they’re active. QCDs aren’t allowed from ongoing SEP and SIMPLE IRAs.

“It’s really a great thing, but it does change the strategies that we need to do rather than just converting 100% to Roth.” – Bud Kasper

What Is a QCD Is Also Pertinent When Answering the Question, What Is an RMD?

Prior to the SECURE Act becoming law in 2020, there was another reason that 70½ was a milestone age when it came to retirement planning. That was the age that people had to start taking Required Minimum Distributions. A RMD is the required amount that must be withdrawn from traditional IRAs/401(k)s and SIMPLE or SEP IRAs. The SECURE Act moved RMD age from 70½ to 72, and then SECURE 2.0 moved it up again. RMD age is now 73 for 2023 and will eventually move up to 75 by 2033.

“We now have this weird gap period where you can donate to charity through a QCD and not have it impact your RMD in those first couple of years. That’s something you’ll want to consider as well. Do you still want to do the QCD if you’re in that age gap? It depends. You need to make sure you’re looking at the full financial picture to make sense for you.” – Corey Hulstein, CPA

The RMD amount depends on the age of the account owner and their account balance. The amount withdrawn is typically a taxable distribution for the account owner. However, the account owner may elect to have some or all of their RMD (up to $100,000) sent directly to a charitable organization or church via a QCD. By sending this amount to the charity from the account, bypassing the account owner, the withdrawal isn’t taxable.

Why QCDs Have Been More Popular in Recent Years

QCDs have been a more popular tax planning strategy since 2017, and there’s a specific reason for it. That’s when the Tax Cuts and Jobs Act was signed into law. The Tax Cuts and Jobs Act has lowered taxes for many Americans. One of the things it has done is that it’s made it hard to get benefit from charitable deductions because the standard deduction has essentially doubled.

With the Tax Cuts and Jobs Act, we’re seeing the standard deduction for a couple that’s 55-plus at around $30,000 this year. We can only deduct $10,000 of taxes—whether that’s property taxes or state income taxes. So, if you don’t have a mortgage at this point, you probably need to donate around $20,000 before you start to see a benefit from your charitable donations. One perk of QCDs is that they bypass the standard deduction formula and takes it right off the top of the income.

“It’s almost like you get a dual benefit. You get the money to charity and you get the higher standard deduction.” – Dean Barber

Keeping IRMAA Implications in Mind

There can still be value in QCDs even if you’re itemizing your deductions because we need to keep IRMAA implications in mind as well. When you donate through a QCD, it never hits your income. But if you take that distribution and send it to the charity subsequently, it hits your income first, which means it’s going to be subject to potential IRMAA issues. For those unaware, IRMAA stands for Income-Related Monthly Adjustment Amount and it’s for Medicare.

“When they’re determining your Medicare premiums, they’re going to look at your adjusted gross income plus your tax-exempt interest for 2024. It’s going to be right around $200,000. So, if your income is more than $200,000, you’re going to pay more for Medicare for the same coverage as every other American.” – Corey Hulstein, CPA

The Power of Tax Planning

There’s also a potential impact on the taxability of Social Security. Lowering your taxable income could make QCDs even more worthwhile for you. Doing so can also lessen the amount of your Social Security that becomes taxable. While Social Security is taxable by itself, up to 85% of your benefit can become taxable when combined with other sources of income.

And there’s the possibility of dividends or capital gains being taxed at a higher rate. It’s a big impact if your capital gains rate went from 0% to 15%, 20%, or 23.8%. So, since QCDs don’t actually hit your income, they can solve your problems in a lot of other ways than just deducting the donation.

To learn more about tax planning strategies such as QCDs and how they can benefit you, download our Tax Reduction Strategies guide. QCDs can play a crucial role in not only mitigating taxes for one year, but over your lifetime.

What Is a QCD

Download: Tax Reduction Strategies Guide

What Is a QCD? Here’s an Example

Let’s take a deeper dive into what a QCD is and the tax benefits it can provide with an example. Sam and Samantha Sample both turned 73 in 2023. Samantha has an IRA, and her account balance was $500,000 as of December 31, 2022.

Samantha’s RMD for 2023 is $19,531.25, and it will be taxed at their marginal tax rate as ordinary income. Sam and Samantha used to itemize their deductions when filing their tax returns. However, they no longer have a mortgage with interest to deduct. Due to the increase in the standard deduction from the Tax Cuts and Jobs Act that we mentioned earlier, they will claim the standard deduction in 2023.

The Samples give $1,000 per month to their church via a written check from their bank account. However, even with $12,000 in annual charitable contributions, they don’t have enough deductions to itemize. While getting a tax benefit is not the primary reason for their charitable activity, it would be a bonus.

Reducing Your RMDs through QCDs

Samantha would benefit from a QCD in this example. To receive the tax benefit, they wouldn’t write a monthly check from their bank account to their church. Instead, when they take Samantha’s RMD for the year, they would send $12,000 directly to their church, and take the remaining $7,531.25 as their RMD.

The $12,000 that was sent to their church isn’t taxable to Samantha, and leaves the church with the same amount of donations had Samantha continued to write a monthly check. Only the $7,531.25 that Samantha received from her IRA will be taxable to them.

The Tax Cuts and Jobs Act Is Scheduled to Sunset on December 31, 2025

While that example hopefully helped to illustrate what a QCD is and the benefits of it, keep in mind that the Tax Cuts and Jobs Act is scheduled to sunset on December 31, 2025, So, on January 1, 2026, the value of the standard deduction will be cut in half. With 2026 on the horizon, does it make sense to structure donations to where you take a year off in 2025 since rates are set to go up in 2026? We also know the market wasn’t very favorable in 2022, so RMDs are probably down this year relative to where they were in 2022.

“Maybe you can give away your full RMD and could give away more. We think the RMD will likely go up next year. We’ve seen some recovery in the market on that side of things. So, there are some scenarios where you could look at structuring what the annual donation amount is.” – Corey Hulstein, CPA

When Should You Do a QCD?

Especially when you’ve reached your RMD age, Dean believes that you should do QCDs earlier in the year. That way it will immediately come off your RMD.

“I’ve seen too many scenarios where people aren’t paying attention and take their RMD before doing a QCD. They missed the benefit because it could have reduced their RMDs. They’re increasing their tax burden for no reason at all.” – Dean Barber

Dean and Corey worked with someone last year that wanted to do a QCD in December after meeting their RMD. They suggested to that person to wait a month to do the QCD to give two month’s worth of donations in January. That way they could fully offset this year’s RMD. The RMD also needs to come out before you can do anything like a Roth conversion.

“We’d rather utilize the RMD with a QCD. Then, we can convert on top of that. That RMD needs to be met before doing something for someone like Bud, who is a Rothaholic, so they can convert more funds to Roth.” – Corey Hulstein, CPA

Reviewing the QCD Rules

So, do QCDs sound appealing to you? QCDs are one of the most popular tax planning strategies because the charity and the charitably inclined person both benefit. Let’s review of what there is to know about QCDs so that you can make an informed decision about them.

  • You must be 70½ or older to make QCDs.
  • The money must go directly from the custodian of your tax-deferred account to the charity. The charity must be classified as a 501(c)(3) organization to qualify. If you’re unsure if your preferred charity qualifies, consult with a tax professional.
  • There’s a $100,000 per year limit that you can give through a QCD.
  • Remember to keep all documentation for your tax professional, including receipts of all donations. Your 1099 won’t show that your distribution was for a QCD.

Are You Considering a QCD?

Now that we’ve reviewed what a QCD is, do you qualify to make them, and would you benefit? If you’re like the Samples and like giving to your church or another qualified charity, a QCD could be worth considering. But before moving forward with making QCDs, it’s critical to work with a CFP® Professional that works alongside a CPA. Both professionals need to understand the nuances of QCDs and the impact they can have on someone’s financial plan.

“I was speaking with a client the other day that has a good relationship with their CPA. My natural question for him was if he’d done any forward-looking tax planning up to this point. He said his CPA does tax planning, but he was really just describing tax deferral every 12 months. Charitable donations become a big part of how we structure the overall financial plan. If charitable giving is important to you, let us know so we can figure out how to structure it moving forward.” – Corey Hulstein, CPA

If you have questions about what a QCD is and if it makes sense for you, we want to hear from you. You can schedule a 20-minute “ask anything” session with one of our CFP® Professionals and/or CPAs by clicking here. We can meet with you in person, by phone, or virtually—it’s whatever works best for you. We look forward to further discussing QCDs with you, especially with the season of giving just around the corner.

What Is a QCD? | Watch Guide

00:00 – Introduction
01:12 – What Is a QCD? Why Are They More Popular Now?
04:09 – IRMAA & QCDs
05:52 – RMDs & QCDs & Roth Conversions
09:51 – Maximum QCDs & Bunching Donations
11:23 – When to Take Your QCD
13:34 – Roth Conversions at RMD Age
16:40 – Ideal Time for Roth Conversions
21:34 – What Did We Learn Today?


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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.