Qualified Charitable Distribution from Your IRA

A Qualified Charitable Distribution (QCD) is a distribution from an Individual Retirement Account (IRA) that is directly transferred to a qualified charity. This type of distribution is also known as a Charitable IRA Rollover. QCDs were first introduced in 2006 as a provision of the Pension Protection Act, and they were made permanent in 2015 by the Protecting Americans from Tax Hikes (PATH) Act.

A Qualified Charitable Distribution (QCD) is a tax-efficient way for individuals who are 70½ years or older to make charitable donations directly from their Individual Retirement Account (IRA) to eligible charities. Instead of withdrawing funds from their IRA and then donating them to a charity, which would result in the funds being counted as taxable income, individuals can make a QCD and have the distribution sent directly to the charity.

1. Reduction in taxable income: By making a QCD, the distribution is excluded from the IRA owner's taxable income, which can reduce the individual's overall tax liability.
2. Satisfaction of Required Minimum Distributions (RMDs): For individuals who are required to take RMDs from their IRA, making a QCD can satisfy the RMD for the year.
3. Increased charitable giving: QCDs can encourage individuals to make charitable donations, as it can be a more tax-efficient way to give to charity than donating funds from a taxable account.