Is a qualified charitable distribution right for you?


Two African-American women volunteering.

In a recent Financial Priorities study1 from Ameriprise Financial, 39% of investors surveyed said that in these challenging times, helping their communities is “much more” or “somewhat more” important.

A qualified charitable distribution (QCD) is a good way to both benefit a charity you support and gain a tax advantage. If charitable giving is a priority for you, you may want to consider talking with your Ameriprise financial advisor about a QCD.

 

What’s a QCD and is it right for you?

A QCD is a nontaxable distribution from an individual retirement account (IRA) to an eligible charity. It can count toward your required minimum distribution (RMD) for the year — and neither you nor the eligible charity will have to pay income taxes. Consider the requirements:

  • You must be least 70 ½ years old.
  • An individual retirement account (IRA) is the only type of retirement account that meets QCD requirements. If you have assets in a 401(k) or other non-IRA plan, you may consider whether rolling those funds into an IRA would be a good step to take in case you want them to be eligible for a QCD.
  • You may only make a distribution to qualified 501(c)(3) organizations. A distribution to donor-advised funds, supporting organizations, private foundations, charitable remainder trusts, charitable gift annuities and pooled income funds does not qualify for QCD treatment.
  • $100,000 is the maximum annual amount that can qualify for a QCD. The amount of any distribution that exceeds $100,000 does not meet the requirements for a QCD, will be included in your gross income and will possibly be subject to income taxes.
  • You must make a direct distribution from the IRA to the charity for the distribution eligible as a QCD. If you distribute funds from your IRA directly to yourself and then donate those funds directly to a charity, the donation does not qualify as a QCD.

 

What are potential tax advantages of a QCD?

While everyone’s situation is unique, a QCD generally offers significant tax advantages to consider. Here are some to be aware of:

  • Donating with a QCD reduces your income, even if you don’t itemize deductions on your tax return.
  • A QCD lowers your adjusted gross income (AGI), which decreases the amount of your Social Security income that could be subject to taxes.
  • A QCD could potentially lower future Medicare premiums, for people subject to the IRMAA rules2.
  • A QCD could lower your Net Investment Income Tax, if you’re subject to it.

Please note, the charitable contribution rules are complex.  See your tax advisor if you are considering making a QCD so that you can evaluate it as part of your entire tax situation.

 

How to get started

Your Ameriprise financial advisor will help you assess if a QCD is right for you, based on your financial goals and needs. They can also work closely with your tax professional to help you understand the tax implications of a QCD.