June 26, 2024

Educating Your Clients on Qualified Charitable Distributions

Clients who are charitably inclined and won't need their full IRA balances in retirement may benefit from using QCDs for their giving
Your clients may benefit from using a qualified charitable distribution for their giving.

Qualified charitable distributions (QCDs) can be valuable giving tools for clients who will likely not need the full balance of their retirement funds to cover their expenses. They can also be a great way for clients taking the standard deduction on their tax returns to receive a benefit from their charitable giving, as they can be excluded from taxable income. If you’re not familiar with QCDs, here is an overview of how they work, and how you can determine if this strategy is right for your clients.

What Are QCDs?

A QCD is a distribution from an individual retirement account (IRA) made directly to a qualified charitable organization. QCDs were introduced as part of the Pension Protection Act of 2006 and made permanent by the Protecting Americans from Tax Hikes (PATH) Act of 2015. In 2024, the maximum annual amount an individual can distribute in QCDs is $105,000. Distributions must meet certain criteria to qualify as QCDs:

  • The IRA owner must be at least 70½ years old at the time of the distribution.
  • The distribution must be made to a qualifying 501(c)(3) organization, or a qualifying fund at a 501(c)(3) organization.
  • The distribution must be made directly from the account custodian to the qualified charity or fund.

What Benefits Can QCDs Provide to Your Clients?

For the right client, QCDs can provide a variety of benefits:

  • Fulfillment of Charitable Giving Goals: QCDs allow clients to support charitable causes they care about directly from their IRA, providing a tax-efficient way to give back to their communities or favorite organizations.
  • Reduced Taxable Income: QCDs count toward satisfying the required minimum distribution (RMD) for traditional IRAs but are not included in the taxpayer's adjusted gross income. This lowers the client’s taxable income, potentially reducing the impact of taxes on Social Security benefits, Medicare premiums and other income-related tax provisions.
  • Potential Estate Planning Benefits: By reducing the value of a client’s IRA, QCDs may help them minimize the size of their taxable estate, potentially reducing estate taxes and leaving more for heirs.

How Can You Help Your Client Decide if QCDs Are a Good Option?

  • Review Your Client’s Financial Goals and Income Sources: Determine whether your client’s current assets will be sufficient to support their lifetime income needs. If they do not need their RMDs to fund their lifetime income needs, and charitable giving is important to them, giving through QCDs could be a great solution.
  • Explain Tax Implications: Clearly outline the tax benefits of QCDs, including the reduction in taxable income and potential savings on federal and state income taxes. (NOTE: If your client has contributed to an IRA after turning age 70 ½, those contributions could reduce the amount of QCDs that may be excluded from their taxable income.)
  • Review Eligibility Requirements: Ensure that your client will be at least 70 ½ years old at the time the QCD is made, and that the distribution meets the other requirements described above.
  • Explore Charitable Opportunities: Encourage your client to explore charitable organizations they are passionate about and discuss how QCDs can support those causes. While QCDs cannot be used to establish donor advised funds, your client could use QCDs to establish other fund types, like a donor designated or field of interest fund. (Click here to find more information about the charitable fund types offered at MCF.)

If you or your clients have additional questions about QCD giving options at MCF, we would be happy to help! Alison Helland, Director of Donor and Advisor Engagement, can assist you or refer you to another member of our Donor Engagement team to serve as a resource for your specific situation. You can reach Alison via e-mail at ahelland@madisongives.org or via phone at 608-446-5937.

Please note that this article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.

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