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Financial Friday Tip: Qualified Charitable Distributions

December 08, 2023

Financial Tip Friday: If you are over 70½, you may want to start thinking about making charitable donations from your traditional IRA and have them count toward your required minimum distribution (RMD). This is called a qualified charitable distribution (QCD).

Here’s how it works: A QCD is a direct asset transfer from a traditional IRA to a charity or non-profit organization of your choice. The organization must be tax-exempt under IRS guidelines. Remember, the original owner of a Roth IRA doesn’t have to take RMDs.

  • The donation counts toward your RMD for the year, so you can fulfill your RMD while also giving to charity.
  • The IRS says you must be at least 72 to make a QCD.
  • The distribution may not be included in your gross income. A tax professional can provide more guidance.

There are details and certain restrictions that are important to understand. For example, the IRS puts a $100,000 limit on the total distribution.

There are many strategies for incorporating charitable donations into your personal finances. Consider asking for help from a financial professional who has insights into charitable strategies. With a QCD, for example, it’s critical to allow enough time for the asset transfer to occur.

At age 73, you must start RMDs from a traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

FMG created this content to provide insights into a topic and is not affiliated with a broker-dealer or investment advisory firm.