Qualified Charitable Distributions | QCD rules for 2024
Qualified Charitable Distributions (QCDs) are a powerful way to give money directly from your IRA to a qualified charity. However, there are some key steps to doing these correctly.
Curious of the rules and maximums? This is the only video you need to watch.
Transcript:
Let's talk about QCDs, Qualified Charitable Distributions. I'm Chris Kaminski, co-founder and partner here with Consilio Wealth, where we specialize in working with tech professionals at Amazon, Microsoft, Meta, and Google.
QCDs, Qualified Charitable Distributions. So, if you're over the age of seventy and a half, you can make a QCD. A Qualified Charitable Distribution is limited to $105,000 per year. Note that 2024 was the first year that QCDs started to index for inflation. All the prior years, it was $100,000 and starting in this year, 2024, QCDs will index for inflation. So, this year, $105,000.
You can make a distribution from your IRA directly to a qualified 501(C)(3) organization, and that distribution is non-taxable to you. I think what's important to understand here is that that distribution is not deductible to you. So, let's say for simplicity, you made a $100,000 QCD. You can't take a $100,000 tax deduction. However, the $100,000 that you took from your IRA does not show up as ordinary income.
Also of note is that taking a QCD satisfies your RMD or your required minimum distribution for the year. Let's say that your RMD is $20,000. $20,000 would be forced out of the IRA this year and would be taxed if you sent say $100,000 over to a qualified charity via a QCD, that RMD is satisfied according to the IRS and you do not have to pay tax on it. So again, this is not tax deductible.
It just is a way to reduce taxation by moving money from the IRA over to a qualified charity. A couple of things. You have to make this distribution directly from your IRA to the qualified charity. If you instead take it onto your own personal balance sheet first, that will show up as taxable income. And then there are limitations on how much you could gift. Gifting cash to charities is limited to 50% of your AGI, your adjustable gross income. Gifting highly appreciated securities on the other hand is limited to 30% of AGI.
I know we're not talking about highly appreciated securities here, but it's common gifting techniques. So, I thought I would put it in. Okay, a couple of other quick rules, anything with IRA behind it can qualify for this. So, an IRA, an inherited IRA, a simple IRA, so long as it's not an active plan and a SEP IRA also so long as it's not an active plan, you can make a QCD from QCDs are 100% excludable from your taxable income. But again, note that they are not tax deductible. It's important to note that itemization is not required for a QCD.
This is huge because a lot of retirees don't actually itemize their deductions. So, you can take the full standard deduction and you can do a QCD and you are not required to itemize in order to get the benefits of that QCD. It's worth noting that keeping taxable income lower in retirement can have positive effects elsewhere by either increasing your chance of taking a tax credit or lowering the amount of social security tax you pay by having less of your social security check be taxed, or possibly even by keeping you under Medicare surcharge rates if your RMDs are large enough to where you have to pay those.
Finally, you can use up to $53,000 one time via a QCD to fund a charitable remainder trust or a charitable gift annuity. Those are essentially trusts that allow you to benefit yourself slightly by earning some income from those trusts, and then when you die, the remainder amount goes to a charity.
I won't cover those in significant detail in this video, but it is worth noting that you have the ability to fund this one time via a QCD. Questions on QCDs? Reach out if you haven't. Hope this was helpful.
