Qualified charitable distributions: Tax-free donations from your individual retirement account

If you are charitably inclined and have taxable IRAs that generate distribution amounts larger than you want or need, you may want to consider making a qualified charitable distribution (QCD) this year. IRS rules allow individuals who are 70½ or older to donate up to a certain amount ($105,000 for 2024) directly from a taxable IRA to certain charities.

The amount of any QCD can be used to satisfy all or part of your required minimum distribution (RMD) for that year, is excluded from your gross income and is not counted toward the maximum amount deductible for those who itemize. Therefore, a QCD may allow you to avoid higher income tax brackets and certain phaseout amounts while potentially reducing your IRA balance and future RMDs as well as satisfying your charitable goals.

The following are some important rules to consider in connection with a QCD:

1. The maximum amount for 2024 is $105,000For 2024, the maximum amount for a QCD is $105,000 per person, meaning a married couple may give up to $210,000 this year so long as no more than $105,000 comes from each spouse’s IRA. As part of this $105,000 maximum, an individual is allowed to make a one-time QCD distribution up to a certain amount ($53,000 in 2024) to a charitable gift annuity or a charitable remainder trust.
2. The QCD must be made payable to an eligible charityA QCD must be payable to a public charity (other than a donor-advised fund or a supporting organization). If you are unsure as to whether your desired charity is qualified to receive a QCD, talk to your tax advisor.If the IRA custodian is sending your QCD directly to the charity, make sure the IRA custodian includes your name if you want recognition from the charity. If a check is issued, you can have the check delivered to you for you to then deliver to the eligible charity as long as the check is made payable to the charity.
3. The distribution must clear before year endEach year, the deadline for making a QCD is December 31. If you want the QCD to be counted in the current year, you must submit the request in enough time for the IRA custodian to process the transfer by December 31. If a check is written, you must make sure that the charity deposits the check before December 31 to count for the current year.
4. Coordination with RMDsIf you are required to take an RMD for the year, your QCD can be used toward satisfying your RMD.  If you have already received your RMD for the year, you can still make a QCD, but the amount of the QCD does not count towards your RMD.
5. QCD Tax ReportingIRA custodians must report QCDs exactly as they would a regular IRA distribution, meaning if your QCD is from a traditional IRA, the distribution will be reported as taxable income. As a result, you must report the QCD as a nontaxable distribution on your tax return to ensure the amount is not included in your taxable income.

The QCD rules are complex, but the use of QCDs can be an important tool to accomplish philanthropic goals. If you are considering a QCD this year, it is important to start planning now and consult with your tax professional to make sure you comply with the QCD requirements.

Leslie Kehoe is a senior wealth strategist for CIBC Private Wealth in Atlanta with 25 years of industry experience. In this role, Leslie is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high net worth clients.