The Qualified Charitable Distribution is one of the most underutilized tax benefits, yet almost 25 million Americans can take it.
There are many requirements for taking a Qualified Charitable Distribution (QCD), or QCD. You must be 70 ½ and have an IRA. If more folks understood QCDs better, they might take them. David Hogan joins us today with the ABCs of QCDs.
David Hogan is the Principal of Clifton Larson Allen CPA’s in Atlanta, GA.
What is a Qualified Charitable Distribution (QCD)?
Simply put, a QCD directly transfers funds from your Individual Retirement Account (IRA) to a qualified charity. This move doesn’t offer a deduction, but you don’t have to report the distribution as income, creating a unique tax advantage for those who qualify.
How to Take a QCD
Taking a QCD can be straightforward. If your IRA offers check-writing capabilities, you can write a check directly to your chosen charity. If not, you can set up a direct transfer online or over the phone. Your favorite charity can often assist you in setting this up if needed.
Tax Advantages of a QCD
A QCD can be particularly beneficial for those over 70 and a half if you’re not itemizing deductions. You might not get a tax benefit from your charitable contributions if you take the standard deduction. However, with a QCD, you avoid recognizing the IRA distribution as income, effectively reducing your taxable income.
Required Minimum Distributions (RMDs) and QCDs
Although the required minimum distribution (RMD) age has been moved to 73, you can still benefit from a QCD. Distributions to a charity through a QCD count toward satisfying your RMDs without adding to your taxable income. This is especially useful for those with larger IRAs who don’t need the funds for living expenses.
Who Can Benefit from a QCD?
QCDs aren’t just for the wealthy. While those with large IRAs can undoubtedly benefit, anyone with an IRA who is charitably inclined can use a QCD to gain a tax advantage. If you’re not itemizing deductions and usually take the standard deduction, a QCD allows you to give charitably without increasing your taxable income.
Practical Tips for Using a QCD
Consider replacing the charitable contributions you typically make from your after-tax dollars with distributions from your IRA. This strategy allows you to use your other assets for personal expenses while maximizing the tax benefits of your IRA distributions.
A QCD is the best giving opportunity that many eligible individuals are not taking advantage of. If you have an IRA and are over 70 and a half, consider this tax-efficient way to support your favorite charities.
On Today’s Program, Rob Answers Listener Questions:
- What should I do with my 401k since I’m approaching retirement in March 2025? I'll have around $200,000 in it, and I wanted advice on whether to roll it over to an advisor or leave it where it is once I retire.
- Can I deduct the value of my labor for the repairs and maintenance I do on the rental property where I live? Since I own and live in the building with some tenants, I do much of the work to keep costs down. But I wanted to know if I could charge for my time or labor and have it be legal.
- Would it be wise to take out a home equity line of credit on my $181,000 mortgage and use that HELOC to pay my daily expenses? I would throw my entire paycheck towards paying down the principal on the mortgage, and I would pay it off within about four years. I would like your thoughts on whether that strategy is a good idea.
- Would it be wise to use my $215,000 annuity to pay off my $140,000 mortgage as soon as possible? I'm 54 years old and will be retiring in about five years, at which point I'll receive a yearly pension of around $85,000-$90,000. I wanted advice on utilizing my annuity and whether eliminating my mortgage debt made the most sense.
Resources Mentioned:
- An Uncommon Guide to Retirement: Finding God's Purpose for the Next Season of Life by Jeff Haanen
- Rich Toward God: A Study on the Parable of the Rich Fool
- Find a Certified Kingdom Advisor (CKA) or Certified Christian Financial Counselor (CertCFC)
- FaithFi App
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