Qualified Charitable Distribution (QCD)

A Qualified Charitable Distribution (QCD) is a provision in the U.S. tax code that allows individuals who are 70½ years or older to directly transfer up to $100,000 from their Individual Retirement Accounts (IRAs) to qualified charitable organizations without incurring federal income tax on the distribution.

QCDs can be an effective way for retirees to satisfy their required minimum distributions (RMDs) while simultaneously contributing to charity. By utilizing a QCD, the amount donated is excluded from taxable income, which can also help reduce potential tax implications related to Medicare premiums and Social Security benefits that can be affected by income levels.

To qualify as a QCD, the following conditions must be met:

1. The individual must be at least 70½ years old at the time of the distribution.

2. The distribution must be made directly from the IRA to a qualified charitable organization. Contributions to donor-advised funds or supporting organizations do not qualify.

3. The total amount of QCDs cannot exceed $100,000 per individual per year. For married couples, both spouses can each make QCDs of up to $100,000 from their IRAs.

For example, if an individual aged 72 donates $10,000 from their IRA directly to a charity, that amount counts towards their RMD and is not included in their taxable income for that year. This strategy not only benefits the charity but also helps the donor manage their tax obligations effectively.

In Texas, and specifically in areas like Houston, individuals can easily facilitate QCDs by working with local financial institutions or charitable organizations to ensure compliance with the tax code and to verify the status of the charity as qualified under IRS rules.