A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an IRA to a qualified charity. QCDs may be counted towards satisfying minimum distribution requirements for certain tax-deferred retirement accounts. First introduced in 2006 as a temporary provision, the rules were finally made permanent as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015.
Some of the core requirements for making a QCD are as follows:
Note – if passed, the proposed CHARITY Act (S. 2750) will allow QCDs to be directed to donor-advised funds.
A brief example of how the QCD can be a powerful planning strategy is detailed below in a simple hypothetical tax projection for a married couple living in Massachusetts with RMDs of $100k and a desire to contribute the same amount to charities:
*The taxability of Social Security benefits is based on taxpayer’s Modified AGI (MAGI) – up-to 85% may be taxable
**Assumes charitable contributions of $100k are made from cash or other assets
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