Why Donate via an IRA QCD? Learn the Benefits, Rules, & More

The Jewish Community Foundation, Inc. collaborates closely with many donors throughout the year to help them reach their philanthropic goals.

While donors primarily contribute to their endowment fund or donor advised fund (DAF) with the JCF by giving cash or appreciated assets, those who are eligible to give using their Individual Retirement Account (IRA) can realize many benefits, as outlined below.

In short, for many individuals aged 70½ and older, those who donate via an IRA QCD often find it to be a highly tax-efficient way to support nonprofit organizations.

Known formally as a Qualified Charitable Distribution (QCD) or Qualified Charitable Rollover, this strategy of donating through an IRA allows donors to transfer funds directly from their IRA to a qualified charity. When executed properly, a QCD can reduce a donor’s taxable income, satisfy Required Minimum Distributions (RMDs), and create a meaningful philanthropic impact.

Understanding Qualified Charitable Distributions*

A QCD is a direct transfer of up to $108,000 per year per taxpayer ($216,000 per married couple) from a traditional IRA to an eligible 501(c)(3) public charity (such as the JCF or the Jewish Federation of Southern New Jersey and its family of agencies or a synagogue or day school).

The donor must be at least 70½ years old at the time of the distribution—not simply turning 70½ in the current calendar year. Funds must move directly from the IRA custodian to the charitable organization to qualify; in other words, the donor should not deposit a check from the IRA into their own account, since that would be considered income from the IRA, and instead, the check should be written out from the IRA to the nonprofit directly.

QCDs can be used to satisfy part or all of a taxpayer’s Required Minimum Distribution, or RMD, the annual withdrawal requirement that begins at age 73 (or later, depending on birth year). Since RMDs are normally taxed as ordinary income, directing these withdrawals to charity through a QCD offers a unique opportunity to bypass taxation entirely.

Pro tip: There can be a delay in getting your check processed by your financial institution and sent to your selected charitable cause. As such, please plan accordingly to ensure the contribution arrives in time to meet your goals, for example, to have the check arrive by December 31 to count for the current year's taxes.

Potential Tax Benefits for when You Donate via an IRA QCD

The most significant advantage of QCDs is that the transferred amount is excluded from taxable income. This stands in contrast to taking a regular IRA withdrawal and then donating the cash, which would require the donor to report the withdrawal as income before possibly deducting the contribution.

By reducing taxable income, QCDs may produce several secondary benefits such as:

• Lowering Medicare premium surcharges (IRMAA) by reducing modified adjusted gross income (MAGI)

• Minimizing the taxation of Social Security benefits

• Potentially reducing exposure to higher tax brackets

• Helping donors who do not itemize deductions, since QCDs offer a tax advantage even when using the standard deduction, as most taxpayers do

For retirees seeking to minimize their tax footprint while still meeting charitable objectives, QCDs are one of the most powerful tools available. Your trusted advisor can provide additional guidance on the impact of your IRA QCD on your financial plans.

Restrictions and Important Rules for Your QCD

Donors must follow specific rules for their IRA gifts to qualify as QCDs:

1. Eligible Accounts: Only traditional IRAs and some inactive SEP and SIMPLE IRAs qualify. Employer-sponsored plans like 401(k)s must first be rolled into an IRA if donors want to use the QCD strategy.

2. Eligible Charities: QCDs must go to public charities. QCDs cannot go to donor advised funds (DAFs), private foundations, and charitable gift annuities as they are not eligible by IRS regulation.

Important note: Although a QCD cannot go towards a DAF, donors may indeed use a QCD to create/grow an endowment fund with the JCF to benefit future generations and create your lasting legacy. Please contact JCF Executive Director David Snyder at 856-673-2528 or dsnyder@jfedsnj.org to learn more about this opportunity.

4. Age Requirement: The donor must be 70½ or older at the time the distribution leaves the IRA.

5. Direct Transfer: The IRA custodian must send funds directly to the charity—checks made payable to the donor disqualify the distribution. (Note: Please be sure to contact the charity to inform them of your gift, as full donation information is not always included when the check is sent to the charity, and thus it may delay processing and recognition of your gift.)

6. Annual Limits: Each taxpayer may contribute up to $108,000 per year.

   
   

Why QCDs Are a Smart Giving Strategy

By combining tax savings with philanthropic impact, QCDs allow donors to give more efficiently and strategically.

They not only enable retirees to meet their RMD obligations without increasing taxable income, but they also provide steady support to the charities they value most.

For donors seeking to streamline their taxes while making a difference, charitable giving through an IRA is a strategy well worth considering.

*This is for informational purposes only and should not be construed as legal, tax, or financial advice. Please consult with your trusted advisor for more information.

Disclaimer: This post used AI for outlining/drafting and was edited by JCF staff.