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What the Permanence of the Qualified Charitable Distribution Rules Means for You

Picture of Randall E. White

Randall E. White


An Introduction to the Qualified Charitable Distribution

For years, the rules surrounding the ability to utilize a tax-free Qualified Charitable Distribution (QCD) directly from your IRA to a non-profit were on-again, off-again. The rules would lapse frequently, then be reinstated by Congress – but only for two years at a time. Finally, with the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015, the rules allowing for the QCD were made permanent in tax law.

Consequentially, it is now much easier to take proactive steps in your charitable giving strategy so that you can minimize the tax implications of your IRA’s Required Minimum Distribution (RMD). However, you must follow very strict requirements if you want to receive the tax benefits associated with gifting a QCD to a registered charitable organization. These requirements include age limitations, maximum dollar amount limitations, and regulations on the particular types of charities that are eligible.

Perhaps the most well-known and stringent requirement, though, is that an IRA distribution cannot qualify as a QCD unless the check is made payable directly to the charitable organization. This means you’ll need to plan ahead if you want to pursue a QCD – once your RMD has been distributed to you, it’s too late to use it as a QCD.

A Detailed Look at QCD Requirements

The legal requirements for making a Qualified Charitable Distribution (QCD) from your IRA to a charitable organization were created in 2006 under the Pension Protection Act. The core requirements are as follows:

  • An IRA owner must be 70 ½ years old to qualify for a QCD from their IRA to an eligible charity. This is a strict rule – you must have reached this age by the date of distribution, rather than simply turning 70 ½ later in the same calendar year as the distribution. Interestingly, this rule applies to beneficiaries of inherited IRAs, too. A beneficiary can be eligible for a QCD if they themselves have reached age 70 ½ by the date of distribution.
  • The law also specifies a maximum dollar amount permitted for a QCD. An IRA owner is limited to $100,000 in QCD distributions each year across any and all individual IRA accounts they may own. However, it is notable that this is a per-taxpayer rule – a married couple each owning their own IRAs may each complete a QCD for up to $100,000 from their own accounts.
  • Only particular types of IRAs are eligible for a QCD – it must come from a distribution from an individual IRA (rollover IRAs included). Distributions from a SEP or SIMPLE IRA that are actively receiving employer contributions are not eligible, nor is any other type of employer retirement account. While Roth IRAs are eligible for a QCD, distributions from these accounts are already tax-free, making the QCD rules irrelevant.
  • The type of charitable organization able to qualify for a QCD is also subject to regulation. The law stipulates that it must be a “public charity” as defined by IRC Section 170(b)(1)(A). This means that a QCD cannot go to a private foundation, a charitable supporting organization or a Donor-Advised Fund.
  • Finally, a QCD must come from a distribution that would also be eligible for a full charitable deduction. This rule is meant to prevent the QCD donor from receiving quid pro quo benefits from making a donation, and it also has the effect of making charitable remainder trusts and charitable lead trusts ineligible as QCD beneficiaries.

QCD Benefits

When it comes to the QCD process, doing good is good for your finances. This is because a QCD is a distribution that comes out of your IRA without the typical tax consequences; that is, it is excluded from your income altogether for tax purposes. Since, by this definition, the QCD is already completely pre-tax, there is no charitable deduction for making a QCD contribution to a charitable organization.

A QCD is also beneficial if you have a Required Minimum Distribution (RMD) from your IRA. A QCD satisfies the RMD even though it is not taxable, as an RMD would typically be.


Assume Janet is 71 years old and owns an IRA with an account balance of $152,000. Since she is over 70 ½, she will be required to take an RMD in the sum of $5,736 for the year. If Janet does a $5,000 QCD to her favorite qualifying charity, it will satisfy most of her RMD obligation, with just $736 to distribute and report for tax purposes. Janet could also choose to do a $6,000 QCD to the charity, which would be more than enough to satisfy her RMD obligation and leave her with no tax consequences from the distribution.

Note: An RMD is presumed to be satisfied by the first IRA distribution in the calendar year, and an RMD is irrevocably distributed. For this reason, you should plan ahead if you want to do a QCD. If you receive an RMD, it will be too late to use it for a QCD.


End-of-Year Deadline

If you want to receive favorable treatment for your QCD in the current tax year, the charity recipient should cash the check by December 31. Since the distribution process can take several weeks, this means starting the QCD process by early December. Most often, the IRA custodian will mail the check to the IRA owner – though it will be made payable to the charitable organization – meaning the IRA owner must wait to receive the check, then also forward it on to the charity. A process exists to get the IRA custodian to send the check directly to the charity, but it requires something called a Medallion Signature Guarantee, which is a process similar to notarization but more stringent and time-consuming. TriCapital has the capability to affect a Medallion Signature Guarantee but many advisors do not so make sure you know your advisor’s capabilities before embarking on a QCD.

Some gray area exists in the law as to what constitutes a “completed” donation to a charity. It is sometimes defined as when the charity receives the check, and sometimes even as the mail date. However, to ensure your QCD shows as a completed distribution by the end of the calendar year, time it so the charity can deposit the check before December 31. This is the best way to make certain you receive all proper credit in the tax year of the distribution.

Roth IRAs and QCDs

Distributions from Roth IRAs are, generally, already tax-free. This is true whether the distribution is a tax-free qualified distribution of growth or a return of principal. As such, a QCD is generally a moot point in the context of a Roth distribution.

However, in a scenario where the Roth IRA owner has not met the 5-Year Rule, a distribution might actually be considered a “non-qualified” distribution. In this case, the distribution would be taxable and could have alternatively been treated as a QCD with no tax consequence. (should this ready “could have alternatively been treated…”?)

Note: While a QCD provides considerable tax benefits for many people, scenarios exist in which it is more beneficial to take the RMD and then off-set that income by donating appreciated securities to a charity instead. This option allows for a charitable tax deduction and also avoids any applicable capital gains taxes.

How to Complete a QCD in Four Steps

If you’d like to make a QCD to your favorite charity, there are four checkboxes to tick:

  1. You must be at least 70 ½ years old on or before the date of distribution.
  2. You must submit a distribution form to your IRA custodian to request that the distribution check be made payable directly to the charity.
  3. You must ensure that all the money will actually go to the charity and that no tax withholding will be done from the QCD.
  4. You must forward the distribution check on to the charity, or request that the IRA custodian send it directly to the charitable organization itself.

The QCD process is fairly simple, but it is key that all four of the above requirements are met – most especially that the check is made payable directly to the charity. If the distribution goes to the IRA owner first, it will be too late to use it as a QCD and it will be a taxable distribution instead.

Now that the QCD rules are permanent, you have the opportunity to make a QCD every tax year. When a QCD is properly completed, this process allows you to provide tremendous financial benefit to a charity that is meaningful to you, while also decreasing your taxable income.

Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.

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