As you and other attorneys, CPAs, and financial advisors put the finishing touches on implementing clients’ year-end charitable giving plans, you may wonder how exactly a Qualified Charitable Distribution works.  

Even though QCDs are well-covered in financial media, they’re complex enough that it’s difficult to remember the nuances when you’re in a situation where a client might benefit. 

The team at North Carolina Community Foundation is here for you! Please reach out with any of your charitable giving questions, including the most common questions about QCDs: 

Is an IRA the only eligible source for Qualified Charitable Distributions? 

Short answer: Almost. 

Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If your client’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, they may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free. 

What are the differences between a QCD and an RMD? 

Short answer: Quite a few! But a QCD can count toward an RMD.  

Long answer: Everyone must start taking Required Minimum Distributions (RMDs) from their qualified retirement plans, including IRAs, when they reach the age of 73. RMDs are taxable income. 

The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of retirement plans (such as IRAs) to certain types of charities. A QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution. 

Can a taxpayer make a Qualified Charitable Distribution even if the taxpayer is not yet required to take Required Minimum Distributions? 

Short answer: Yes–within a very narrow age window.  

Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs shifted from 70 ½ to 72 and is now 73 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts before they must take RMDs). 

Can my client direct a QCD to a fund at the community foundation? 

Short answer: Yes, if it’s a qualifying fund. 

Long answer: While donor advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds can receive QCDs. These include scholarship funds, field of interest funds, designated funds, and agency endowment funds established by nonprofit organizations. 

Your clients may also give directly to an existing fund at NCCF without starting their own. With options including local affiliate foundations and the Disaster Relief Fund, NCCF is their charitable giving resource.  

How much can my client give through a QCD?  

Short answer: $105,000 per year in 2024, increasing to $108,000 in 2025. 

Long answer: A Qualified Charitable Distribution permits a client (and their spouse from the spouse’s own IRA or IRAs) to transfer up to $105,000 in 2024 (and $108,000 in 2025) from an IRA (or multiple IRAs) to a qualified charity. So, a married couple may be eligible to direct up to a total of $210,000 in 2024 to charity from IRAs and avoid significant income tax liability.  

Our team is here to help you and your clients reach the potential of QCDs. Please contact us! We’d love to talk about a QCD strategy for your clients’ immediate gifting needs and beyond. 

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.