Qualified Charitable Distributions — New York

The standard approach to charitable giving from retirement assets is to take an IRA withdrawal, pay income tax on it, and then donate the after-tax proceeds to charity — claiming a charitable deduction on Schedule A. This approach has two problems. First, the IRA withdrawal increases your Adjusted Gross Income (AGI) even if you itemize the deduction, which can trigger Medicare premium surcharges (IRMAA) and increase the taxable portion of your Social Security benefits. Second, since the Tax Cuts and Jobs Act nearly doubled the standard deduction, most retirees no longer itemize — meaning the charitable deduction provides no tax benefit at all. A QCD bypasses both problems: the distribution goes directly to charity and is never included in your AGI.

A QCD requires the IRA custodian to make a check payable directly to the qualified charity — not to you. If the check is made payable to you and you then donate it, it does not qualify as a QCD. The distribution must come from a Traditional IRA (not a 401(k) or other employer plan), and the IRA owner must be age 70½ or older at the time of the distribution. The QCD counts toward the Required Minimum Distribution for the year — up to the RMD amount. Any QCD in excess of the RMD does not carry forward to future years. The maximum QCD is $105,000 per person per year in 2024, indexed for inflation.

Each spouse can make a QCD of up to $105,000 per year from their own IRA. A married couple where both spouses are age 70½ or older can together transfer up to $210,000 per year to charity tax-free. This is particularly valuable for couples with large combined IRA balances and significant charitable intent — the QCD strategy can eliminate a substantial portion of the RMD tax burden while supporting the causes they care about.

A significant portion of Doug's clients give to churches, faith-based organizations, and community causes. For clients who are already giving regularly to their church or other qualified organizations, replacing cash gifts with QCDs from the IRA is a straightforward tax improvement. The charity receives the same amount. The client's tax bill is lower. The QCD satisfies the RMD obligation. Doug identifies the QCD opportunity for every client with charitable intent and coordinates the giving strategy with the overall income and tax plan.

The SECURE Act's 10-year distribution rule creates a compressed tax problem for beneficiaries who inherit large pre-tax IRAs. One response is ROTH conversion during the owner's lifetime. Another is to use QCDs to draw down the pre-tax IRA balance during the owner's lifetime, directing those assets to charity rather than leaving them to heirs who will pay tax on the distributions. For clients with both charitable intent and heirs, the optimal strategy often combines QCDs (for the charitable portion) with ROTH conversions (for the portion intended for heirs) — leaving heirs a tax-free Roth IRA rather than a taxable Traditional IRA.