One frustration for wealthy retirees with large IRA balances is the idea of a required minimum distribution (RMD), the rule that requires you to take a minimum amount out of your IRA each year once you reach a certain age. Some retirees don’t need this money to live on, and for those who are charitably inclined, a qualified charitable distribution (QCD) is worth considering.
What are qualified charitable distributions?
A QCD is a way to gift money directly from your IRA to a qualified charity in order to minimize the income generated from the IRA each year. Rather than taking the distribution yourself and then donating, the money moves directly from the IRA to the charity.
A QCD example
Take a retiree with a $50,000 RMD for the tax year who already gives about that same amount to qualified charities each year. By directing that $50,000 through QCDs instead of paying tax on $50,000 of income, the money is gifted directly to the charities and the income generated from the IRA for the year is zero.
Limits and considerations
QCDs are subject to limits, and the gift has to go directly to the charity to qualify. A QCD can be a great way to divert some of your RMD money to charities and minimize the taxes you’ll owe on your IRA for the tax year, but it’s not the right fit in every situation. Always consult with your advisor and your tax professional to make sure a QCD is a good fit for you.
