Can I Give my QCD to a DAF? And Other Questions
The giving season fosters conversations about the ways that philanthropically-inclined individuals can support charities in the easiest, safest, and most effective manner. One of these ways is making a Qualified Charitable Distribution (QCD) from your Individual Retirement Account (IRA).
QCDs are gaining in popularity and we often receive questions about how they work, especially in the context of international giving. See below the top 5 questions our donors have asked about QCDs.
1. What is a Qualified Charitable Distribution (QCD)?
At age 70 ½ , you are required to start taking money from your retirement account. These are called Required Minimum Distributions (RMD) and are taxable income. If you have a Roth IRA, you are not required to take any RMDs as your savings were taxed as they went into your account.
As you begin withdrawing funds from your account, in keeping with RMDs, you are also now eligible to begin making Qualified Charitable Distributions (QCDs). A QCD is a distribution from your retirement account that goes directly to charity, instead of to yourself. The benefit of making a QCD is that it can be counted towards satisfying your RMD and does not incur income tax.
QCDs were made permanent law in 2015 with the passage of the Protecting Americans from Tax Hikes (PATH) Act.
Note: QCDs cannot be made from 401(k) accounts.
2. Can I make a QCD?
- You must be 70 ½ or older
- You must have a retirement account (most IRAs can make QCDs)
- The maximum annual amount that can qualify as a QCD is $100,000 and the sum of multiple QCDs cannot exceed $100,000. Any amount more than $100,000 does not qualify towards your RMD nor does it rollover to the next year.
- If you file jointly with a spouse, you may both make QCDs up to $100,000
See more context from the IRS
3. Why should I make a QCD instead of making my normal charitable gifts?
If you had withdrawn funds from your retirement account and then had given the funds to charity, you would be taxed on your initial withdrawal. You could still benefit from a tax deduction by giving the withdrawn funds to charity, but by making a QCD instead, the charity will benefit from the full amount you choose to distribute, rather than the amount after tax. Beyond the benefit of being able to give more, it can also lower your adjusted gross income, effectively lowering your taxable income.
Additionally, you are not required to itemize to benefit from making a QCD. This may be a boon to many donors who are looking to take the higher standard deduction this year due to the new tax law.
Nevertheless, in some cases, it may be more beneficial to take an RMD and “offset the income by donating appreciated securities instead”. As always, consult your advisor for the best course for you.
4. Can I make my QCD to my Donor Advised Fund (DAF)?
QCDs cannot be made to DAFs. However, since the sponsoring organization of your DAF is a 501(c)(3), you can still make your QCD to that charity if they have other programs that you are able to fund outside of your DAF. Such purposes include general support for the charity or for other programs they may maintain outside of their role as a DAF sponsor.
Qualified Charitable Distributions can also not be made to private foundations, split-interest charitable trusts, or supporting organizations.
5. Can I use my QCD for international giving?
Yes, using your QCD for international giving is possible!
Some qualified US 501(c)(3) charities specialize in supporting nonprofits outside of the US. Your QCD may be used to support foreign charities by giving through one of these US charity intermediaries, such as CAF America.
QCDs may only be made to charities we have already validated and have active grant agreements with, or charities that have established a Friends Fund at CAF America. A Friends Fund is a restricted account opened by CAF America for the purpose of supporting the activities of a designated foreign charity. The fund is fully restricted for grantmaking to that charity to support their charitable activities.
So if you’re considering making a QCD now, or in the future, be sure to reach out to us to learn more about the ways your QCD can support charitable efforts across the globe. You may reach us at email@example.com or 202-793-2232.