What is a Qualified Charitable Distribution?
- Donors age 70-1/2 and older can transfer up to $100,000 from their IRA to a qualifying charity each year, such as InFaith Community Foundation.
- The “IRA charitable rollover” provides an annual exclusion from gross income up to $100,000 for Qualified Charitable Distributions (QCDs) from an IRA.
- The amount transferred may be used to meet the donor's required minimum distribution.
- Watch this explainer video to learn more about qualified charitable distributions (QCDs) from IRAs.
What are the tax advantages?
- The amount directed to charity is not included in the donor's adjusted gross income (AGI).
- Giving these assets to charity, versus taking required minimum distributions (RMDs) into income, may enable donors to avoid certain disadvantages that can come with a higher AGI, such as higher Medicare premiums, self-employment or Social Security taxes, etc.
- There is no income tax to the donor on the IRA distributions to the charity, and charities pay no income tax on the distributions they receive.
- As QCDs are not subject to percentage limitations on charitable deductions, this an ideal strategy for donors who have maxed out charitable deductions or do not itemize deductions.
Giving Options through InFaith Community Foundation
Donors may direct QCDs to InFaith Community Foundation through any of the following:
- Donors may establish a Designated Fund (Non-Advised), and select charities in advance that will receive annual grants from the fund, either for a term-of-years or in perpetuity. In order to qualify for the QCD, donors may not maintain any advisory capacity over the fund once it’s established. (i.e. They may not add or remove selected charities, or change the distribution plan.)
- This is a great opportunity for donors to make a gift to create an endowment fund for their church or other faith-based public charity ($25k minimum), or to contribute to existing endowment funds at InFaith.
- InFaith Collaborative Funds help address our community's changing needs over time, such as helping to end family violence through church-based training, providing assistance during times of disaster, and supporting faith-based environmental stewardship efforts.
What else do donors need to know?
- Only IRA distributions qualify - no SEPs, SIMPLE plans, 403(b), 401(k), profit-sharing plans, or pension plans.
- Distributions must be made directly to charity from the plan administrator.
- The IRA owner must be at least 70-1/2 on date of distribution.
- There's a limit of $100,000 per individual per year.
- Because the distribution is not counted in the donor’s AGI, there is no charitable deduction on federal income tax returns.
- State income tax treatment may vary from federal law.
What if the donor has already taken RMDs for the year?
The donor may still use the rollover to make gifts up to $100,000 from an IRA without using it to satisfy RMDs.
What charities can benefit?
QCDs can be made directly to a public charity that is not a supporting organization. Contributions to donor advised funds and private foundations, except in narrow circumstances, do not qualify for tax-free IRA rollover contributions. Additionally, tax-free transfers/distributions cannot be used to establish a charitable gift annuity or charitable remainder trust.