A QCD for your RMD

With the passage of the Tax Cuts and Jobs Act of 2017, we thought it timely to remind our readers of the Qualified Charitable Distribution (QCD) option available to those individuals that are 70½ or older. If you have charitable intentions, this option may be even more favorable under the tax reform bill. As always, we recommend that you consult your CPA to determine if the QCD option meets your goals.  We are here to answer your questions and help you with this type of distribution.

Kimberly Butler, CFP®
Associate Financial Planner

As year-end quickly approaches and we start preparing for the season of giving, our team has frequently been asked how the Qualified Charitable Distribution (QCD) works and who can utilize it. What are the advantages and disadvantages? Our first response is always, “do you have a charitable organization you care about?” We ask this question because those who benefit most from the QCD option are those who already intend to make a charitable gift.

If you have a charity in mind during the holiday season that you want to donate to and you are at least 70½ years old1, there are some real advantages to pairing your already-planned charitable gift with your Required Minimum Distribution (RMD). First, if the donation meets or exceeds your required withdrawal amount for the year, it is deemed to satisfy the RMD obligation2. Second, the QCD comes out of your IRA3 without any tax consequences. In essence, it saves you a couple of tax planning steps by eliminating the federal tax bill you would otherwise have on an RMD withdrawal, while also canceling out the tax deduction you could claim for that charitable donation on your tax return.

However, there are also some common pitfalls that you should be aware of before you write that check to your charity of choice. One of the most important considerations is whether the organization you plan to donate to is eligible to receive tax-deductible charitable contributions. You can search the IRS website at to determine if a gift to your organization of choice will satisfy the RMD obligation. You are also allowed to donate to multiple charities. Secondly, the donation must go directly to the organization. Most custodians (such as Charles Schwab) will make the check payable directly to the charity or charities of your choice and mail it to you. This allows you to deliver the check and get the receipt and recognition for the donation. Third, this must be the first distribution that comes out of the IRA for the year. Once an IRA distribution is taken to satisfy the RMD requirement, you cannot take a QCD and have it retroactively applied to your RMD amount for that same year. You also cannot undo the prior distribution. It is always best practice to consult us (your financial advisor) and your CPA to determine if the QCD option meets your charitable and financial goals, and to ensure the distribution is done correctly to satisfy the federal requirements as outlined by the IRS.

Already taken your RMD for this year? For years, the QCD was temporary, but now that it is permanent, we can help you to plan ahead for next year as you consider the QCD for your RMD.

Kailie Abascal
Associate Financial Planner


1 Beneficiaries of Inherited IRA may also use a QCD to meet their annual RMD requirements as long as he or she is 70½ of age on or before the date of distribution
2 The annual limit per tax-payer is $100,000, regardless of the number of IRA accounts used to make the charitable distribution. You may also choose to take a partial distribution and partial QCD to fully satisfy your RMD obligation.
3 Only distributions from tax-deferred individual IRAs, Rollover IRAs, or Inherited IRAs are eligible. QCDs cannot be made from employer retirement plans nor active SIMPLE or SEP IRAs.

Share This