Retirement & Tax

Use a QCD for your RMD from your IRA

Ron Gambassi
November 14, 2017

Have you heard of the qualified charitable distribution (QCD)?

If not, you’re in good company.

If you’re 70 ½ or older, reading the rest of this may save you quite a bit in taxes. If you’re not, read this anyway and tell your parents, friends, and anyone who is.

If you donate funds to a charity directly from your IRA (or inherited IRA) it can satisfy part or all your required minimum distribution (RMD) for the year.

When you take an RMD from your retirement account it’s treated as a distribution and taxed at your ordinary income tax rate. After all, Uncle Sam waited a long time to get some of the spoils from your tax deferred contributions (and their growth). It’s only fair he gets his cut.

But Sam is a good Uncle and in a moment of charitable compassion, in 2015 he enacted a law (with several hundred of his friends in Congress) that allows a person to donate to charity without any tax on the distributed amount.

What’s that you say? I love the idea. How do I do it? Here are the steps:

  • Ask your IRA custodian for the forms to send a donation from your account directly to the charity. Never take the distribution yourself or it will be taxed.
  • Have your IRA custodian transfer the assets to the charity
  • Report your QCD on Form 1099-R along with your Form 1040 tax return

There are a few things to consider. First, the maximum annual amount that can qualify for a QCD is $100,000. You can give more than $100,000 but the excess does not count towards your RMD in a subsequent year. Also, you don’t want to do a QCD from your ROTH IRA because the ROTH already has the tax-free provision. Finally, you can’t also take a tax deduction for your QCD donation. That’s double dipping and your good Uncle wouldn’t like that.

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