May 10, 2023

Using a Qualified Charitable Distribution From Your Retirement Account

If you have reached retirement age and find that you don’t need the income from your individual retirement account to cover your living expenses, you may want to consider using a qualified charitable distribution to meet your charitable giving goals while lowering your taxable income.

QCDs are tax-free transfers made by someone age 70½ or older directly from their qualifying retirement account to a qualifying charity. Most taxpayers are permitted to make QCDs totaling up to $100,000 each year; however, a lower annual limit may apply to taxpayers who made deductible contributions to certain types of retirement accounts.

For purposes of the QCD requirements, a “qualifying retirement account” typically includes a traditional IRA, an inherited IRA, an inactive Simplified Employee Pension plan or an inactive Savings Incentive Match Plan for Employees (SIMPLE) IRA. (In theory, you could make a QCD from a Roth IRA, but it is rarely advantageous to do so because Roth IRA distributions are already tax-free.) A “qualifying charity” typically includes most 501(c)(3) organizations; it does not include private foundations, supporting organizations and donor advised funds held by 501(c)(3) organizations.

To help you understand how QCDs work, and whether they might work in your plans, here are five frequently asked questions about them:

Why are QCDs popular?

If you are between ages 70½ and 72, QCDs can remove pre-tax funds from your retirement account before you reach age 73 and need to start taking required minimum distributions. Lowering the balance of your account prior to age 73 can lessen the eventual income tax hit that accompanies your RMDs.

After you turn 73, any QCDs you make will count toward your annual RMD requirement. This means that the more tax-free QCDs you make during a calendar year (up to the annual limit), the less you will have to withdraw and include in taxable income to meet your RMD amount.

What is the difference between a QCD and an RMD?

There are two main differences between RMDs and QCDs. First, while you are required to take RMDs from your qualified retirement plan upon reaching age 73, you are never required to make QCDs to eligible charitable organizations. Secondly, any RMDs you receive from your qualified retirement plan will be included in your taxable income, while any QCDs you make to an eligible charitable organization will not be included in your taxable income.

Can I make a QCD even if I am not yet required to take RMDs?

While it would seem logical that both RMDs and QCDs would have the same age thresholds, they do not. The SECURE Act shifted the required date for starting RMDs from age 70½ to age 73 (which is better for taxpayers who want to delay taxable income); however, it did not make a corresponding shift in the eligible age for making QCDs. Therefore, anyone over age 70½ can still make QCDs.

Can I direct a QCD to my fund at MCF?

Yes, if it’s a qualifying fund. Although donor advised funds cannot accept QCDs, Madison Community Foundation has other types of funds that can accept them. For example, you could contribute QCDs to a designated fund for a specific nonprofit, a field of interest fund benefiting a broad area of interest, or an unrestricted fund (for example, MCF’s Priority Fund).

I had the custodian of my retirement account send me a check, and plan to sign it over to my selected nonprofit organization. Will this qualify as a QCD?

No. The rules around QCDs are very rigid and require that the custodian of your qualifying retirement account make the distribution check payable to your selected nonprofit. This is one of the many reasons why you should consult with your tax advisor before making any transfers you would like to claim as QCDs.

If you and your advisor determine that QCDs will work as part of your financial plan, and you would like to make a QCD to a fund at MCF, we would be happy to help you explore what types of qualifying funds will best help you meet your goals.


What are field of interest and designated funds?


The Council on Foundations defines a “field of interest fund” as “A fund held by a community foundation that is used for a specific charitable purpose such as education or health research.” For example, if you are passionate about rare-disease solutions, feeding the food insecure or preserving works of art, you could create a fund at MCF (named after your family, your selected cause, or something else) to address that cause and establish the criteria for funding. MCF’s knowledgeable community impact team would then distribute grants from the fund in a way that is aligned with your values and wishes.


Designated funds are defined as, “A type of restricted fund in which the fund beneficiaries are specified by the grantors.” These are a good choice for someone who knows they want to support a particular nonprofit for multiple years. You can name the fund, and MCF will handle making the annual distributions from the fund to your selected beneficiaries. Nonprofit organizations appreciate being the beneficiaries of designated funds since they can incorporate the annual distributions into their overall cash flow planning.



This article is not meant to provide tax or legal advice. We encourage you to reach out to your advisors to ensure any strategy fits within your overall financial plan before taking action. 

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