By: Phil Kernen

Charitable contributions from your IRA

You saved diligently in your IRA or 401k, building a financial cushion for retirement. But between your smart decisions and market appreciation you ended up with more than you need. Now that you are turning 72, the IRS insists you take out a portion of your funds each year, called a Required Minimum Distribution (RMD). Those distributions immediately become taxable income. The IRS offers an alternative to paying more taxes – give those distributions away.

What is a QCD

First offered as an option in 2006, a Qualified Charitable Distribution (QCD) is a direct transfer of funds from your IRA payable directly to a qualified charity.  Amounts contributed in the form of a QCD can count against satisfying your RMD. However, a QCD is excluded from your income, so no taxes are due. QCDs were renewed annually until 2015 when they were made permanent.


You will need to meet the following rules to qualify your distribution as a QCD.

  • Funds must come out of your Traditional IRA, Inherited IRA, SEP-IRA, or SIMPLE-IRA.  The latter two options must be inactive plans only, meaning they are not receiving employer contributions.  Distributions can’t be made from ongoing employer-sponsored plans such as an active SEP-IRA or SIMPLE-IRA, or 401k/403b plans.
  • You must be at least 70 ½. Younger owners of an Inherited IRA with RMDs do not qualify.
  • Distributions must occur by your RMD deadline, generally December 31 of each year.  Distributions made after December 31 will apply to the next tax year.
  • Distributions must be directed to 501c(3) charities. Donor Advised Funds or private foundations do not qualify.
  • Funds must be transferred directly from your IRA custodian to the charity.
  • Distributions must come from deductible contributions and earnings. They cannot come from non-deductible contributions to your IRA. Keep good records to prove the source of your distribution.
  • QCDs are not limited by the RMD.  The maximum annual QCD is $100,000.  A spouse could make another $100,000 QCD if the couple files a joint return.  This limit does not apply to the overall charitable deduction limit, which may not exceed 60% of adjusted gross income.
  • Previous contributions cannot be reclassified as a QCD.

Itemized vs Standard Deductions

For taxpayers who itemize their tax returns a QCD may be of marginal benefit. If you withdraw your RMD, donate it to charity, and claim the standard deduction, you could achieve the same result as utilizing a QCD. However, in 2017 the Tax Cuts and Job Act increased the standard deduction for most taxpayers from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for joint filers.

According to the chart below, the Tax Foundation estimated this dropped the number of itemizers from 46.5 million in 2017 to 18 million in 2018. As charitable taxpayers become less likely to itemize their return, they are more likely to utilize the QCD provision as a gifting tool.

Any eligible taxpayer subject to RMDs, who is making charitable contributions and not itemizing deductions, can benefit from QCDs.  They can reduce risk in their portfolio by selling securities to meet their RMD, fulfill their RMD, give to charity, and reduce their taxable income.