| Before You Write a Check: Consider Your IRA |
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| Written by Bonnie Hirschfeld, Communications Strategist, HighGround Advisors |
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What is a QCD? A QCD, or qualified charitable distribution, is a distribution from an individual’s IRA account directly to a charitable organization. Unlike most charitable gifts, a QCD does not entitle the donor to a charitable income tax deduction because the IRA was funded with pre-tax dollars. Instead, the funds are excluded from taxable income altogether, which can reduce adjusted gross income and associated taxes. Donors can give up to $111,000 per year to qualified charities using QCDs in 2026, an amount indexed annually for inflation. Most public charities qualify to receive QCDs. However, QCDs generally cannot be made to donor-advised funds, private foundations or supporting organizations. For many donors, one of the most significant benefits of a QCD is that it can satisfy the IRS’s required minimum distribution (RMD). Minimum distribution requirements generally begin at age 73 (or 75 for those born in 1960 or later), and the required amount changes each year based on the individual’s age and account balance. The penalty for not taking the minimum distribution can be steep. A QCD can help individuals meet this threshold and avoid penalties while also supporting charitable causes. This giving strategy also offers tax savings for non-itemizers. With the standard deduction at a record- breaking $32,200 for married couples, most people don’t realize tax advantages through charitable giving. Using a QCD allows you to give charitably with untaxed distributions even while claiming the standard deduction. How can a QCD be used to establish a CGA? Individuals have a one-time opportunity to use a QCD of up to $55,000 to establish a Charitable Gift Annuity (CGA). If a married couple chooses to establish a CGA, each spouse may contribute up to $55,000 from his or her IRA, creating a CGA funded with a total of $110,000. For donors who want to support charity but are concerned about giving away retirement assets outright, a QCD-funded CGA offers an additional planning option. It allows donors to support charitable causes while receiving a fixed stream of lifetime payments. The payment rate is established at the time of the CGA’s creation and is determined by the donor’s age, often based on the recommended rate published by the American Council on Gift Annuities (ACGA). Because the payment rate is fixed at the time the CGA is established, donors can count on predictable payments regardless of market performance. Donors should note that payments from a QCD-funded CGA are generally taxable as ordinary income, which differs from the taxation of some CGAs funded with other assets. Certain restrictions do apply, however. For example, a QCD cannot be used to contribute to an existing CGA. Furthermore, additional assets cannot be contributed to a QCD-funded CGA. What are the eligibility requirements for a QCD? Individuals must be 70½ or older to make a QCD. To count toward a year’s required minimum distribution, the QCD must be completed by December 31. Donors should begin the process several weeks before year-end to ensure the IRA custodian has sufficient time to complete the transfer. The funds cannot pass through the donor’s bank account to be eligible. Therefore, the IRA custodian must issue a check payable directly to the charity. If the QCD is being used to establish a CGA, only the donor and/or their spouse can be the income beneficiaries. This is different from a traditional CGA, which can provide payments to other named individuals. What are some common misconceptions about QCDs? Since QCDs are only a viable gift strategy after 70, they can feel unfamiliar and uncertain to donors. Dispelling some of the most common misconceptions about QCDs can help donors feel confident about this giving tool. Myth: You must wait until required minimum distributions begin to give via QCD. Truth: If you are charitably inclined and already age 70½, you do not need to wait until RMDs begin to use your IRA for giving. Giving through a QCD before RMDs begin can still lower your taxable income while supporting causes you care about. Myth: A QCD is a once-a-year gift. Truth: A QCD doesn’t have to be a once-a-year transaction. It can be part of your regular giving plan. Donors can give through a QCD as many times as they want. QCDs can even fund recurring gifts to nonprofits by requesting multiple QCD checks a year. However, using a QCD to create a CGA is a one-time opportunity. Myth: A QCD is simply a gift. Truth: When you use a QCD to establish a CGA, you fund the causes you care about and create a stream of lifetime payments for you and/or your spouse. What are mistakes to avoid with QCDs?
Your IRA represents years of careful saving and planning. A Qualified Charitable Distribution gives you the opportunity to use those retirement assets not only for financial security, but also to advance the charitable causes closest to your heart. Whether it’s through regular gifts or the establishment of a CGA, this giving tool can be a middle ground between annual giving and legacy giving. See the impact of your generosity during your lifetime and know that your philanthropy can continue to make a difference for years to come. |
Before you write your next charitable check, take a look at where the money is coming from. If you're over age 70½, your IRA may be one of the most tax-efficient and impactful tools for supporting the causes you care about. For many retirees, a qualified charitable distribution (QCD) is a simple way to turn retirement assets into charitable impact.