Enjoy a Lifetime of Tax Savings With This Simple Strategy
It’s called a Qualified Charitable Distribution, and everything you need to know about it is here
See if you qualify
Learn how it’s done
Discover your potential savings using our free QCD Explorer™ web application
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Do You Qualify?
Before learning about the Qualified Charitable Distribution (QCD), make sure you’re QCD-eligible:
You must own a Traditional IRA or Rollover IRA
You (IRA owner) must be age 70 1/2 or older
You must be required to file a US individual tax return
You must make a donation to a qualified public charity
Not QCD-eligible? Check out our valuable tax planning adviceComing Soon! that will help you enjoy all the benefits of Qualified Charitable Distributions in the future.
QCD Learn More
In December 2015 Congress made permanent the law allowing you to give up to $100,000 annually to charity directly from your Traditional or Rollover Individual Retirement Account (IRA) when you are over 70 1/2 years old, while excluding the distribution from taxable income. This type of charitable gift is called a Qualified Charitable Distribution, or QCD.
Generally, distributions from Traditional or Rollover IRAs must be reported as income, which inflates your Adjusted Gross Income (AGI). Even if you were to give the same amount to charity, the charitable gift as an itemized deduction (if you itemize) would reduce your taxable income by the amount of the gift, but it would not reduce your AGI. Because the QCD is not taxable income in the first place, it has no effect on your AGI. This is important because the taxability of Social Security income, itemized deduction phase-outs, Roth and Spousal IRA contribution eligibility, capital gain and qualified dividend tax rates, the net investment income Medicare surtax, the Alternative Minimum Tax, some credit phase-outs, Medicare premium costs, and most state income tax liabilities all factor off your AGI.
Furthermore, making the QCD directly from your IRA allows you to realize tax benefits from charitable giving even if you don’t itemize deductions. Qualified Charitable Distributions count as IRA distributions and can be used to satisfy all or part of your Required Minimum Distribution (RMD). This makes them particularly useful for senior citizens who are still working, have other taxable income including Social Security, or find themselves in a higher tax bracket or subject to higher Medicare premiums based on AGI (IRMAA).
QCDs take on greater significance as a tax-saving strategy now that fewer filers are itemizing. The new tax law nearly doubles the standard deduction (for 2018, to $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for all other individuals, indexed for inflation in subsequent years) and caps the itemized deduction for state and local taxes (SALT) at $10,000 annually. Thus, many taxpayers who previously itemized deductions will now find it advantageous to take the standard deduction instead. These taxpayers will no longer deduct their charitable contributions, but via a QCD, those eligible can still make those contributions with pre-tax dollars, resulting in significant tax savings.
Regs: USC Sec 408(d)(8)
Only individuals who’ve attained age 70 ½ (the RMD age) can make QCDs. For example, if you don’t reach age 70 ½ until December 1, 2019, a direct transfer from your IRA to your favorite charity before December 1, 2019 won’t meet the QCD requirement.
The charitable recipient must be an organization that qualifies for a charitable income tax deduction of an individual, other than a private (grant-making) foundation, a donor-advised fund or a supporting organization under Internal Revenue Section 509(a)(3). Most charities that qualify for the deduction will advise the donor that contributions are tax deductible, but if you’re not sure, see our FAQs for the link to check on your intended charity. The charity that receives the donation must provide donors the same contribution acknowledgment as other deductible charitable contributions it has received. Failure to obtain the acknowledgment will disallow the QCD.
QCDs may be made from a Traditional IRA, a Rollover IRA, or an individual retirement annuity, but not from a Simplified Employee Pension, a Simple IRA, or an Inherited IRA if the beneficiary is under 70 1/2 years old. Notably, a QCD is permitted from a Roth IRA as well, though most distributions from Roth IRAs are already tax-free and therefore QCD rules would not be relevant anyway.
QCDs are capped at $100,000 per person per year, which means both husband and wife can initiate a QCD if filing joint. If more than $100,000 from one individual is donated in the same year via the QCD, there is no carryover of the income exclusion to a future year – rather, the amount exceeding $100,000 can be deducted as a charitable contribution if the individual itemizes deductions.
QCDs apply only to taxable amounts of an IRA distribution. No basis (nondeductible IRA contributions) can be transferred to charity via the QCD, which is a favorable exception to the pro-rata rule. For example, if you own Traditional IRAs totaling $100,000 with a basis of $20,000 in nondeductible contributions, a $10,000 distribution would generally be 20% non-taxable and would reduce your basis for next year to $18,000; whereas the $10,000 QCD distribution would be fully excluded from income while keeping your $20,000 basis intact for next year.
The easiest and most convenient way to make a Qualified Charitable Distribution is simply to write a check from your IRA account to the intended charity, providing of course that you have check-writing privileges on your IRA account. Unfortunately, check writing and debit card features on IRA accounts are the exception rather than the norm, though 1040Plus is leading the charge to convince IRA administrators to adopt these features (please see our FAQs for a discussion on this).
If you don’t have check-writing privileges, instruct your IRA Trustee or Custodian to make a transfer from the IRA directly to the charity in the form of a paper check. IRA Trustees and Custodians have forms and procedures in place to make this transfer (such as this T. Rowe Price QCD Request Form), while QCDNow™ paid users can also generate letters which can be used to make the QCD request from your IRA Custodian (such as this sample QCD Request Letter).
The transfer won’t qualify as a QCD if the check is made out to you. It won’t qualify if the Trustee or Custodian makes the mistake of putting IRA money in a non-IRA account of yours as an intermediate step. The Internal Revenue Service has said that a check from an IRA Account may be made payable to the charitable organization and delivered by the IRA owner to the charitable organization, thus, in these cases, QCDNow™ recommends having the check made payable to the charity and sent to you, then making a copy for your records before forwarding it to the charity.
Make sure that both the distribution from the IRA and receipt of the contribution by the charity occurs by the December 31 deadline to ensure that the QCD qualifies for the current year’s income tax benefit, and be sure to obtain a letter of acknowledgment from the charity.
Reporting the QCD properly on your tax return is quite simple as you can see from the sample Form 1040 p2 we provide here.
In this example the taxpayer had made a $3,000 Qualified Charitable Distribution from his IRA by December 31st of 2018. He received 1099-Rs reporting gross distributions from his pension in the amount of $20,000 and from his Traditional IRA in the amount of $7,500. Thus he reports the $27,500 gross distributions from those plans on line 4a. On line 4b he reports the taxable amount of those distributions of $24,500 ($27,500 gross minus $3,000 QCD). Note the “QCD” literal in the space to the left of the amount in line 4b. This indicates to IRS that the difference between lines 4a and 4b is because of the QCD.
QCDNow™ paid users not only receive a completed 2019 IRS Form 1040 Pg2 showing the proper way to report the QCD, but also receive a link to view an instructional video on how to get your favorite online tax program to report the QCD properly. 1040Plus also offers year-round support for paid users should they need assistance in reporting the QCD on their tax return.
If you’re still not comfortable reporting the QCD on your tax return, why not let 1040Plus prepare your tax return? See our FAQs
Frequently Asked Questions
I wish I’d known about the QCD earlier, how long has it been around?
The first rules permitting a Qualified Charitable Distribution from an IRA were effective for only two years – 2006 and 2007 – beyond which the rules lapsed. For Tax Years 2008 through 2014 the QCD rules were reinstated and lapsed on four different occasions. Two of those years congress did not reinstate the rules until the end of the year (aka ‘fiscal cliff legislation’), leaving only 2 weeks for anyone to actually make a QCD.
In 2015 the process repeated again with QCDs retroactively reinstated in mid-December, but this time, the key change that occurred with the PATH Act of 2015 is that QCDs were not only reinstated for 2015 and extended, but they were finally made permanent. As a result, Qualified Charitable Distributions in 2015 and beyond no longer face the ongoing threat of lapse.
I rarely donate more than a few hundred dollars to any single organization. Will a QCD still help me save on taxes?
For the QCD to have any noticeable impact on your tax savings your QCD donations should be at least $1,000, so as long as your smaller donations to various organizations total $1,000 or more and are paid from your Traditional IRA, the QCD strategy will be worth exploring, particularly if you do not itemize deductions. Theoretically a smaller QCD donation could make a huge difference for you if your AGI is just a few dollars into a higher IRMAA threshold, but, more often than not, larger donations tend to produce larger savings for you.
How can I be sure my charity qualifies for the QCD?
From the IRS website:
Generally, organizations that are classified as public charities are those that
- Are churches, hospitals, qualified medical research organizations affiliated with hospitals, schools, colleges and universities,
- Have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities,
- Receive income from the conduct of activities in furtherance of the organization’s exempt purposes, or
- Actively function in a supporting relationship to one or more existing public charities.
Here’s an IRS resource that can help you determine eligibility for tax deduction purposes:
Because many religious organizations are not required to file annual tax returns with IRS, you may be able to obtain the organization’s tax deductible status on Charity Navigator’s website:
I itemize deductions and write off my charitable contributions. Would the QCD still benefit me?
Just because you itemize doesn’t mean you’re realizing the full benefit of your charitable contributions. Some retirees’ itemized deductions barely exceed their standard deduction, so in these cases it likely would be advantageous to take the standard deduction and make your donations using the QCD to reduce your AGI. As a general rule of thumb, if you do not have enough to itemize deductions without adding in your cash charitable contributions, then there likely will be a noticeable benefit using the QCD.
Filers who itemize large medical expenses would be able to deduct more of those expenses by lowering the AGI-based threshold using a QCD strategy. Excess (over the AGI threshold) medical expenses carry over to some State tax returns, giving you (or us) another factor to consider in quantifying your QCD strategy savings. These filers will be happy to know that our QCD Navigator™ and QCD Pro™ take into consideration the QCD’s impact on the medical expense deduction.
Itemizers also tend to be associated with higher AGI, which, as you can see from the IRMAA chart, are assessed noticeably higher Medicare premiums. So even if you itemize you may be able to realize significant savings if the QCD can be used to lower your Medicare premium. Our QCD Navigator™ and QCD Pro™ will actually alert you when you’re close to realizing these savings (aka the IRMAA Zone™) and advise what it will take to accomplish this.
Higher AGI may also land you in the phaseout range for deductible IRA contributions where these users, as you can see from one of our screenshots, can employ a QCD to realize exponential AGI reduction and tax savings even if they itemize.
Whether you itemize or not, if your income is moderate and the taxable amount of your Social Security benefits can be lowered by reducing your AGI, and if your state income tax is based off your AGI (as most states are), then you’re likely to realize greater tax savings using the QCD. Our infographic demonstrates this – for some filers AGI can be reduced by more than the actual contribution! On the other hand, if your income is so low that you have little or no Federal or state income tax, or if you have a lot of itemized deductions and credits (such as the Child Tax Credit or Other Dependent Credit) that reduce your tax to near zero, then you will not likely benefit using the QCD.
Can distributions from my Inherited IRA be used for the Qualified Charitable Distribution?
It depends. A surviving spouse can do a QCD from an Inherited IRA, but only if the spouse elects to consider the Inherited IRA as his or her own and if he or she is over 70 1/2 years old at the time of the distribution. Non-spousal beneficiaries of Inherited IRAs are eligible to make Qualified Charitable Distributions only if the beneficiary is over 70 1/2 years old at the time of the distribution.
How do I calculate my RMD?
Your RMD is calculated using just two variables: your age, and the year-end balance of all your Traditional/Rollover IRA accounts. Generally your IRA Administrator will calculate your RMD for you every year if you chose this (default) option in the year you received your first RMD. If you wish to calculate your own RMD, simply add up the previous year-end balances of all your Traditional/Rollover IRA accounts and divide it by your life expectancy, which is determined by using the IRS’s published Uniform Lifetime Table.
For example, a 75 year-old single individual who’s IRA accounts totaled $90,000 on December 31, 2018 must take a Required Minimum Distribution of $3,930.13 in 2019 ($90,000 divided by 22.9 distribution period aka life expectancy).
A handy RMD calculator is integrated with our QCD Navigator service.
Some of my IRA contributions were non-deductible, which means a percentage of my IRA distributions are not taxable. How does this affect my QCD?
This is known as the pro-rata rule, which is not applicable to QCDs as no basis (total non-deductible contributions) is to be transferred to charity. This makes the QCD strategy quite compelling for IRA accounts with basis:
Say you’re 72 years old and the total of your non-deductible contributions to your Traditional IRA was $20,000 and the December 31, 2018 balance of your Traditional IRA was $100,000. A $10,000 normal distribution from this account would be 80% taxable and 20% non-taxable (representing the percentage of non-deductible contributions in the account); however, your basis is reduced by the non-taxable portion of the distribution ($2,000) so that future normal distributions will also be (approximately) 80% taxable and 20% non-taxable.
Now, instead, donate that $10,000 directly to charity via QCD. Not only is the full $10,000 excluded from income, but also your $20,000 basis remains intact, which now represents a larger percentage of non-deductible contributions in the account (which has been reduced by $10,000), thereby resulting in a larger percentage of future normal distributions to be non-taxable.
Theoretically, this account holder could make multiple QCDs over the years all the way down to the $20,000 basis amount, then distribute the remaining account basis to him or herself tax free.
A handy Basis calculator is integrated with our QCD Navigator service.
I'd like to have check-writing from my IRA Account to make QCDs easier. Any precautionary advice?
We agree that check writing is a must-have feature for IRA owners who intend to transact QCDs, but not all IRA Custodian firms offer it. As of Fall 2019 these popular IRA Custodian firms offered check writing with their IRA accounts:
- E-Trade (also offers a debit card)
- TD Ameritrade
- Charles Schwab
Each firm has different stipulations attached to their check writing option, such as limits on the number of checks, minimum/maximum transaction amounts, impact on previously-scheduled RMDs, a no tax withholding requirement, etc.
Just make sure you know what your RMD (Required Minimum Distribution) amount is before writing checks from your IRA to charity (or to yourself), as IRS has been known to impose stiff penalties to those who fail to take their RMD amount.
In addition to the checks you will be writing to charity from your IRA, will your IRA Administrator continue to mail your RMD check to you? See your IRA Administrator’s policy on this in writing.
Finally, you should strive to ensure that all checks you write from your IRA account will be negotiated (cashed) by the end of the calendar year so that you and your IRA Administrator are in agreement on the transaction amounts for the calendar year, which will be reflected on your annual 1099-R. In practice, this means beginning the process to complete the QCD by mid-December at the latest. Notably, there is still some debate about what exactly constitutes a completed donation in the case of a QCD in order to meet the end-of-year deadline. Some have suggested that the charity merely needs to receive the check by December 31st – such that the charity is in constructive receipt of the distribution – even if the check isn’t cashed until after the end of the year. And Treasury Regulation 1.170A-1(b) stipulates that when a normal (non-IRA-related) check contribution is made to a charity, the date that the check is mailed is sufficient (even if not received by the charity until after the end of the year). However, this regulation has never been applied directly to evaluate the deadline for making an IRA charitable distribution, so ideally the check itself should be deposited by the charity by December 31st – and clearly shown as a completed distribution on the end-of-year IRA statement – to ensure credit in the proper tax year.
My IRA Account has a debit card feature. Any precautionary advice to using a debit card to make my donation?
A debit card feature attached to an IRA account is still quite rare, and understandably so: imagine the ramifications if the card/number were to be stolen and used to purchase things. Not only would you stand to lose your life savings, but there also would need to be some special circumstance tax ramifications to deal with.
Security concerns aside, while the convenience and advantage of using a debit card to transact a QCD are intriguing, there is also another glaring shortcoming: You must make sure your debit payment goes directly to the intended charity rather than a third-party distributor.
Some popular charity sites (we’ll use charitynavigator.org as our example here) allow you to make donations to charities other than themselves. In these cases you must read the fine print, and you’ll see that they use a third-party processor to distribute the funds to your intended charity. Tax deductible? Yes. Meets IRS regs to qualify for the QCD? NO! Why not? Because the third-party processor used by charitynavigator.org, Network For Good, is a donor-advised fund, which IRS does not allow for QCD purposes.
Here’s the fine print from charitynavigator.org’s Giving Basket: “Donations made through the Giving Basket are processed by Network for Good. Network for Good’s nonprofit donor-advised fund securely distributes donations from donors to the charities they selected. Since this process is not done by Charity Navigator, we do not have the capacity to act as a distributor for IRA funds directly to other charities at this time.”
Furthermore, Network For Good’s fine print reveals that they can take up to three weeks to distribute your donation to the intended charity.
Regs: USC Sec 408(d)(8)
I made out my Traditional IRA RMD check amount to my favorite charity. Should I inform my IRA Custodian of my QCD intentions?
It is not necessary for you to inform your IRA Custodian of any IRA account distribution checks you write. All IRA account checks negotiated by year end, regardless of whether they are for charity or for your own personal use, will be included in Box 1 Gross Distribution of the annual 1099-R. It is up to you (and/or the preparer of your income tax return) to determine the taxable amount.
Most of my RMD was donated to charity, yet my 1099-R Box 2 taxable amount is the same as the Box 1 gross amount. What gives?
Even if your IRA Custodian/Administrator was aware that all or part of your RMD was donated to charity, they are reluctant to report the lower taxable amount on the Form 1099-R knowing that it is ultimately the responsibility of the taxpayer or tax return preparer to report the correct taxable amount on the tax return. It is quite common, however, for the Custodian/Administrator to check the “Taxable Amount Not Determined” box if a QCD transaction had been arranged by the Custodian or even if the IRA account has check-writing privileges.
I use a popular tax program to prepare my taxes online. Will my program accomodate my QCD strategy?
We’ve done the homework for you and reviewed four popular online tax programs: TurboTax, H&R Block, Tax Act, and 1040.com (which 1040Plus resells). As a QCD Now™ paid user you’ll be provided a link to view a video tutorial on how to report the QCD in any one of those programs you specify.
I transacted my QCD per your instructions. Can 1040Plus prepare my tax return also?
It would be our privilege. And if you’re a QCD Navigator™ user you’ll receive a discount of $20 on our professional tax preparation services for Tax Year 2020. Please visit our website at www.1040plus.com where you can review our typical fees, and see that we offer several secure methods for you to send your information to us if you do not reside in northeast Ohio.
Get Started with our free QCD Explorer™
OK, you qualify for the QCD and now you’re ready to see if it can save you money on your taxes. The beauty of QCDNow™ is that you can now make that determination yourself, from the comfort of your easy chair, without setting an appointment to consult with your tax or financial adviser (often on billable time).
We’ve broken the process down into three easy steps for you which, more often than not, can occur over the course of weeks if not months: Plan, Transact, and Report, hence the “PTR” acronym.
We suggest you start with our free QCD Explorer™, enter your figures, and marvel at the results. Your financial situation may be simple enough that our free QCD Explorer™ will provide sufficient results for you to proceed with your QCD strategy without further assistance, i.e. without upgrading to our $44.95 QCD Navigator™ or our $99.95 QCD Pro™. Please keep in mind, however, that although your financial situation may seem simple at first glance, your free QCD Explorer™ results may be so favorable for you that it would be prudent for you to upgrade and ensure that your QCD strategy is verified and supported throughout the three-step PTR process. Here’s a chart comparing the features and benefits of our three options:
QCD Navigator™Complete PTR For DIYers
- Web-Based, View With Any Modern Browser
- Additional Income & Deduction Fields for Greater Accuracy
- All Filing Statuses
- Child Tax Credit/Other Dependent Credit
- Separate Income Fields for Joint Filers
- Adjustments Fields
- Itemized Deductions
- Save your data to your local hard drive
- Integrated RMD & Basis Calculators
- Special Alert When Approaching Medicare Premium Savings Zone
- State Tax savings estimate
- Integrated SECURE Act IRA|QCD Planner coming 2020
- Print, email, download a Summary Report of your results
- Edit, print, download a QCD Request letter for your IRA Custodian
- See Your QCD Reported on a 2020 IRS Form 1040 Pg2
- Receive a MS Excel export file with all your entries
- Video Tutorial for DIY Online Tax Filers
- Priority Email Support
- Receive $20 Off Tax Year 2020 Professional Tax Service (optional)
- Screenshots: 1 2 3 4
- Navigator F.A.Q.
Free QCD Explorer™See The Possible
QCD Pro™Professionally Assisted PTR
- The most comprehensive and accurate assessment of your QCD strategy
- Best option for complex IRA/Tax scenarios beyond the scope of web-based options
- IRS-registered tax professional performing your QCD savings analysis
- Submit your 2019 tax return as a guide or fax/email/upload entirely new information
- Most PTR Pro results within five business days
- Tax professional support throughout the three-step PTR process
- Confer with your tax professional by phone/fax/email/PM/secure portal
- The most accurate State tax savings results
- Integrated SECURE Act IRA|QCD Planner coming 2020
- Includes PDF-Format Summary Report
- Generate up to three PDF-Format QCD Request Letters for IRA Custodian
- See Your QCD Reported on a 2020 IRS Form 1040 Pg2
- Video Tutorial for DIY Online Tax Filers
- Pro F.A.Q.
“Providing a professional level of tax service at a better price for the common man” – Anton M. Lavrisha, Founder of 800-TAX REFUND, Inc. (parent company of 1040Plus), whose words twenty-nine years ago formed the foundation for the mission of 800-TAX REFUND, Inc.
“Empowering taxpayers with the resources they need to better themselves” – Joel T. Dimengo, President of 800-TAX REFUND, Inc., whose investments in technology and innovation would distinguish the methods by which 800-TAX REFUND, Inc. carries out its mission.
From its two neighborhood tax offices in northeast Ohio, 800-TAX REFUND, Inc. quickly gained a national following in January 1998 when IRS granted the company the first legislative privilege of its kind: the authority to accept fax signatures in lieu of original signatures. Continued development in delivering convenient, responsive, and affordable tax services to taxpayers nationwide would later help 800-TAX REFUND, Inc. become one of just two companies to earn the IRS Industry Partner Award in each of the thirteen years that IRS granted the award.
1040Plus assists thousands of taxpayers each year in having their taxes prepared and/or filed electronically, and QCDNow™ represents the company’s latest initiative to extend its expertise in an area of the tax law that is certain to benefit retirees and charitable organizations alike.
You can learn more about 1040Plus and its income tax services at www.1040plus.com
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