Understanding a Qualified Charitable Distribution (QCD)

It’s October! The last three months of the year are always busy for my family – both my girls have birthdays in addition to Halloween, Thanksgiving, Christmas, and New Year’s. I’m sure your families have similar experiences, which is why I like to get a head start on any year-end planning items. I’ll keep this short and sweet though, so we can get back to carving pumpkins and making Halloween costumes.

One of my favorite planning tools for retirees with IRAs is the Qualified Charitable Distribution (QCD). For folks over age 70.5, you can make a tax-free donation up to $111,000 (in 2026) from your IRA directly to a qualified charity.

If you haven’t taken your required minimum distribution for 2026 and don’t need the funds, I often recommend doing a QCD. Then, you aren’t paying income taxes on money that you don’t need, and the money goes to good use at the non-profit of your choice! Also, you can split up your distribution, so part goes to you, and part goes to a non-profit. Let’s walk through an example: Your 2026 required minimum distribution is $30,000. You don’t need all of that for living expenses and do not want to pay taxes on the full $30,000. You decide to split it up into thirds:

·        $10,000 to you for living expenses. This is taxed at your ordinary income tax rate.

·        $10,000 to Charity A. You give us the name and address of the non-profit, we complete the paperwork, you sign, and a check is mailed directly from your IRA to the non-profit.

·        $10,000 to Charity B. Same process as above. It’s very important that any money you want to donate as a QCD does not go to you first. The donation needs to be directly from your IRA to the non-profit.

In January, you’ll receive a 1099-R reporting the amount distributed from your IRA. Custodians are not required to identify QCDs on the 1099-R, though they can by using Code Y in Box 7. Therefore, you’ll want to keep track of how much you’ve done in QCDs (or check in with us during tax season), so that you can inform your tax accountant of the portion of your IRA distributions that were sent to you and the portion sent to the non-profit(s).

Call us if you have any questions or are interested in making a Qualified Charitable Distribution for 2026. For now, I’ll leave you with my Queen of Hearts from Halloween 2024. 

- Courtney