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Rules to Remember with Qualified Charitable Distributions (QCD) Thumbnail

Rules to Remember with Qualified Charitable Distributions (QCD)

A Qualified Charitable Distribution (QCD) is a tax-free withdrawal from your IRA that is made directly to a qualified charity. Each year, individuals 70 ½ or older can donate up to $100,000 directly from their IRAs and avoid reporting the distribution as taxable income. These QCDs can count towards your Required Minimum Distribution (RMD), but only up to the $100,000 limit.

A few rules to remember:

Ensure there is cash on hand. 

Notify Soundmark prior to making a QCD so that we can ensure enough cash is available to cover your check. QCD checks presented without cash available is a violation and repeated violations of insufficient funds could result in losing the account’s tax-deferred status. 

Confirm the charitable organization is a qualified 501(c)(3).

Make sure the organization that you wish to make a QCD to is a “qualified” 501(c)(3) eligible to receive tax-deductible contributions. QCDs may not be made to a donor-advised fund or private foundation.

Submit your QCD early.

Give your charitable organization time to cash the check before the end of the year. A QCD does not count toward fulfilling your RMD until the check clears in your Charles Schwab IRA.

Don’t take an RMD early in the year if you also want to do a QCD.

Individuals who want to reduce their RMD income with a QCD should first do a QCD directly from their IRA to the charity, then take the RMD for the year.

Track your distribution checks.

Schwab does not track QCDs. They will report the donation as a normal distribution on your 1099-R. To avoid being overtaxed, you need to track your gifting, and at tax time, let your CPA know the amount of distributions that were charitable donations.  

If you have any questions or need assistance with a QCD, please contact our office.

This content is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.


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