Qualified Charitable Distributions
On December 29, 2022, the SECURE 2.0 Act became law. This legislation implements changes intended to strengthen the retirement system. Relevant changes are reflected in this article.
A Qualified Charitable Distribution (or QCD) is when individuals take distributions from their IRAs, and it usually counts as income for tax purposes. QCDs, also called IRA Charitable Rollovers, is an exception. Individuals 70 ½ years of age or older can distribute up to $100,000 each year (the amount that donors can give to charity via QCD will increase by a percentage in 2024 to account for inflation) from their IRAs to their favorite 501(c)(3) organizations without counting the distribution as income.
For more additional information on QCDs, please visit the IRS website.
Are qualified charitable distributions for you?
Making a Qualified Charitable Distribution (QCD) can be a great option to lower your income taxes while doing good for others. If you’re subject to a Required Minimum Distributions, QCDs count toward your Required Minimum Distribution, effectively lower your adjusted gross income and often bring about many tax benefits.
Required Minimum Distribution
The Required Minimum Distribution (RMD) is the smallest amount individuals must distribute from their IRA each year. As of January 1, 2023, the age to start taking RMDs increased from age 72 to age 73, with the exception of donors who turned 72 before January 1, 2023. This number will increase to age 75 in 2033. The penalty for missing an RMD is 25% of the amount that was supposed to have been distributed.
If you’re 70.5 or older, but you don’t have an RMD yet, you can still make a QCD. Doing so can lower your adjusted gross income and effectively reduce your income taxes.
To learn more, feel free to check out the IRS website for additional useful information on RMDs.
Note: contributions you make to your IRA after you turn 70 ½ may reduce the amount you are allowed to claim as a QCD. Please contact your IRA financial institution or your tax preparer for more information.
Qualified Charitable Distribution trends
Qualified Charitable Distributions are growing rapidly. Across all nonprofits surveyed, the average growth in QCDs from 2017 to 2018 was a whopping 73.8%. Of all nonprofits surveyed, 92% saw an increase in QCD giving from 2017 to 2018. Just 7% saw a decrease. Those who saw a decrease were primarily very small nonprofits that had very few in both years.
How to sign up for FreeWill's QCD tool
The FreeWill QCD tool currently supports gifting from traditional IRAs. To sign up to use the customized tool, please use this link and follow the provided instructions.
2022 Qualified Charitable Distributions Report
FreeWill has published a free report on Qualified Charitable Distributions and how your organization can harness its power. Check out the report here.
Disclaimer: FreeWill is not a law firm, and does not provide legal advice. While FreeWill strives to ensure that its automated services are complete, they are meant purely as self-help forms. The materials and services are not substitutes for the advice of an attorney.