It's that time again - to make QCDs from TIRAs early. It's from a community paper in which I publish weekly personal finance features.
https://indoustribune.com/business/finance/qcds-from-tiras-retirement-charitable-contributions/QCDs from TIRAsThere are several ways to make charitable contributions – direct from taxable accounts, from DAFs & as QCDs (Qualified Charitable Distributions) from Traditional IRAs (TIRAs).
QCDs can be made only from TIRA, not from workplace 401k/403b (but those can be rolled-over/ direct-transferred to TIRA).
QCDs can be made after 70.5 & that is 2.5 years before RMDs start now. The annual limit is inflation-adjusted ($108K in 2025; 2x for couples).
After Required Minimum Distributions (RMDs) start at 73, the QCDs count as RMDs up to the QCD limit. QCD can also be more than RMD, but the excess cannot be applied to next year’s RMD. QCDs reduce future RMDs & may avoid Medicare Part B IRMAA (Income-Related Monthly Adjustment Amount) triggers.
QCDs don’t flow through 1040 income & don’t require itemized Schedule A for deduction. They can be made by both itemizers & non-itemizers. So, they are clearly better than charitable contributions from taxable accounts or from withdrawals taken from TIRAs.
QCDs must go directly from the IRA sponsor to charities although IRA checkbook may be used (technically, money doesn’t flow through your hands). Make QCD well ahead of the yearend so that the donation is completed by the yearend (sent by sponsor, received by charity & acknowledged).
QCDs cannot go into DAFs (Donor-Advised Funds).
Comments
QCDs can be made only from TIRA
QCDs can also be made from Roth IRAs if the distribution would have been taxable. For example, if you only opened your first Roth less than five years ago. Almost always an inferior choice to making the QCD from a TIRA.
It's that time again
An exception to the rule of thumb that one take distributions later in the year (since markets go up more years than not) is when doing Roth conversions. For those, earlier in the year may be better since the same number of dollars represents a higher percentage of the TIRA than later in the year. Again under the assumption that markets go up.
If you're using QCDs to satisfy your RMD, you have to do that before you can do a Roth conversion. So these two rules of thumb (early for conversions, late for QCDs) are in conflict. Whether it is better to do both early in the year or both late varies case by case and depends on the size of each.
The annual limit is inflation-adjusted ($108K in 2025; 2x for couples).
Each spouse is still restricted to the individual limit of $108K. This differs from something like the estate tax, where, if one spouse does not use up their entire exemption, the other spouse gets to use it. With QCDs, if one spouse doesn't contribute the full $108K, the other spouse can't increase their limit by the unused amount.
Thanks, Derf
I included the basics for a general audience within the severe space limitations of community E-paper - mini-features have about 400 words within the total column space of about 750 words.