Qualified Charitable Distribution…
Many charitable individuals who are 70½ or older have already been taking advantage of the QCD. This technique allows a taxpayer to make an annual transfer of up to $108,000 (as of 2025) from an IRA to a qualifying public charity such as a field-of-interest fund, scholarship fund, or unrestricted fund at the community foundation. The taxpayer does not need to pay income tax on the distribution and, for taxpayers who must take RMDs from their retirement plans, the QCD counts toward that year’s RMD.
Here’s what’s new, thanks to SECURE 2.0:
More time to accumulate retirement assets
Under the new law, the required minimum distribution (RMD) age (previously 72) increased to 73 on January 1, 2023. RMDs are the IRS-mandated distributions from qualified retirement plans. The RMD age will further increase to 75 beginning on January 1, 2033. This provision is a boost to retirees’ financial plans and may mean more dollars available for charitable giving, especially in the form of a tax-savvy beneficiary designation of retirement plans to charity.
Note that the age for QCD eligibility is still 70½, and, still, donor-advised funds are not eligible recipients of a QCD.
“Legacy IRA” opportunity
SECURE 2.0 makes QCDs even more attractive because taxpayers may now make a one-time $50,000 QCD transfer to a charitable remainder trust (CRT) or other split-interest gift such as a charitable gift annuity (CGA). These components of the new law are called the “Legacy IRA” provisions.
Following are some FAQs that may be helpful to you…
“IS AN IRA THE ONLY ELIGIBLE SOURCE FOR QUALIFIED CHARITABLE DISTRIBUTIONS?”
Short answer: Almost.
Long answer: An individual can make a Qualified Charitable Distribution directly to an eligible charity from a traditional IRA or an inherited IRA. If the individual’s employer is no longer contributing to a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, the individual may use those accounts as well. In theory, a Roth IRA could be used to make a QCD, but it is rarely advantageous to do that because Roth IRA distributions are already tax-free.
“WHAT IS THE DIFFERENCE BETWEEN A QCD AND AN RMD?”
Short answer: Quite a bit! But a QCD can count toward an RMD.
Long answer: Everyone must start taking Required Minimum Distributions (“RMDs”) from their qualified retirement plans, including IRAs, when they reach the age of 73. RMDs are taxable income. The Qualified Charitable Distribution, by contrast, is a distribution directly from certain types of retirement plans (such as IRAs) to certain types of charities. A QCD can count toward the taxpayer’s RMD for that year. And because the QCD goes directly to charity, the taxpayer is not taxed on that distribution.
“CAN A TAXPAYER MAKE A QUALIFIED CHARITABLE DISTRIBUTION EVEN IF THE TAXPAYER IS NOT YET REQUIRED TO TAKE REQUIRED MINIMUM DISTRIBUTIONS?”
Short answer: Yes–within a very narrow age window.
Long answer: RMDs and QCDs are both distributions that impact retirement-age taxpayers, and it would seem logical that the age thresholds would be the same. Under the SECURE Act, though, the required date for starting RMDs shifted from 70 ½ to 72 and is now up to 73 (which is better for taxpayers who want to delay taxable income). A corresponding shift was not made to the eligible age for executing QCDs; that age is still 70 ½ (which benefits taxpayers who wish to access IRA funds to make charitable gifts even before they are required to take RMDs).
“CAN A DONOR DIRECT A QCD TO A FUND AT THE MORTON COMMUNITY FOUNDATION?”
Short answer: Yes, if it’s a qualifying fund.
Long answer: While donor-advised funds are not eligible recipients of Qualified Charitable Distributions, other types of funds at the Morton Community Foundation can receive QCDs. These funds include unrestricted funds, field-of-interest funds, designated funds, and endowment funds established by nonprofit organizations.
“HOW MUCH CAN AN INDIVIDUAL GIVE THROUGH A QCD?”
Short answer: $108,000 in 2025.
Long answer: A Qualified Charitable Distribution permits a client (and a spouse from a spouse’s own IRA or IRAs) to transfer up to $108,000 in 2025 from an IRA (or multiple IRAs) to a qualified charity. So, a married couple may be eligible to direct up to a total of $216,000 in 2024 to charity from IRAs and avoid significant income tax liability.
The Morton Community Foundation is here to help you. Please reach out!