Only individuals who’ve attained age 72 (the RMD age) can make QCDs. For example, if you don’t reach age 72 until December 1, 2021, a direct transfer from your IRA to your favorite charity before December 1, 2021 won’t meet the QCD requirement.

The charitable recipient must be an organization that qualifies for a charitable income tax deduction of an individual, other than a private (grant-making) foundation, a donor-advised fund or a supporting organization under Internal Revenue Section 509(a)(3). Most charities that qualify for the deduction will advise the donor that contributions are tax deductible, but if you’re not sure, see our FAQs for the link to check on your intended charity. The charity that receives the donation must provide donors the same contribution acknowledgment as other deductible charitable contributions it has received. Failure to obtain the acknowledgment will disallow the QCD.

QCDs may be made from a Traditional IRA, a Rollover IRA, or an individual retirement annuity, but not from a Simplified Employee Pension, a Simple IRA, or an Inherited IRA if the beneficiary is under 72 years old. Notably, a QCD is permitted from a Roth IRA as well, though most distributions from Roth IRAs are already tax-free and therefore QCD rules would not be relevant anyway.

QCDs are capped at $100,000 per person per year, which means both husband and wife can initiate a QCD if filing joint. If more than $100,000 from one individual is donated in the same year via the QCD, there is no carryover of the income exclusion to a future year – rather, the amount exceeding $100,000 can be deducted as a charitable contribution if the individual itemizes deductions.

QCDs apply only to taxable amounts of an IRA distribution. No basis (nondeductible IRA contributions) can be transferred to charity via the QCD, which is a favorable exception to the pro-rata rule. For example, if you own Traditional IRAs totaling $100,000 with a basis of $20,000 in nondeductible contributions, a $10,000 distribution would generally be 20% non-taxable and would reduce your basis for next year to $18,000; whereas the $10,000 QCD distribution would be fully excluded from income while keeping your $20,000 basis intact for next year.

The easiest and most convenient way to make a Qualified Charitable Distribution is simply to write a check from your IRA account to the intended charity, providing of course that you have check-writing privileges on your IRA account. Unfortunately, check writing and debit card features on IRA accounts are the exception rather than the norm, though 1040Plus is leading the charge to convince IRA administrators to adopt these features (please see our FAQs for a discussion on this).

If you don’t have check-writing privileges, instruct your IRA Trustee or Custodian to make a transfer from the IRA directly to the charity in the form of a paper check. IRA Trustees and Custodians have forms and procedures in place to make this transfer (such as this T. Rowe Price QCD Request Form), while QCDNow™ paid users can also generate letters which can be used to make the QCD request from your IRA Custodian (such as this sample QCD Request Letter).

The transfer won’t qualify as a QCD if the check is made out to you. It won’t qualify if the Trustee or Custodian makes the mistake of putting IRA money in a non-IRA account of yours as an intermediate step. The Internal Revenue Service has said that a check from an IRA Account may be made payable to the charitable organization and delivered by the IRA owner to the charitable organization, thus, in these cases, QCDNow™ recommends having the check made payable to the charity and sent to you, then making a copy for your records before forwarding it to the charity.

Make sure that both the distribution from the IRA and receipt of the contribution by the charity occurs by the December 31 deadline to ensure that the QCD qualifies for the current year’s income tax benefit, and be sure to obtain a letter of acknowledgment from the charity.

Reporting the QCD properly on your tax return is quite simple as you can see from the sample Form 1040 p1 we provide here.

In this example the taxpayer had made a $3,000 Qualified Charitable Distribution from his IRA by December 31st of 2020. He received 1099-Rs reporting gross distributions from his Traditional IRA in the amount of $7,500 and from his pension in the amount of $20,000. Thus he reports the $7,500 and $20,000 gross distributions from those plans on lines 4a and 5a respectively. On lines 4b and 5b he reports the taxable amount of those distributions. Note on line 4b the taxable amount of his IRA distribution is $4,500 ($7,500 gross minus $3,000 QCD). Also note the “QCD” literal in the space to the left of the amount on line 4b. This indicates to IRS that the difference between lines 4a and 4b is because of the QCD.

QCDNow™ paid users not only receive a completed 2020 IRS Form 1040 Pg1 showing the proper way to report the QCD, but also receive a link to view an instructional video on how to get your favorite online tax program to report the QCD properly. 1040Plus also offers year-round support for paid users should they need assistance in reporting the QCD on their tax return.

If you’re still not comfortable reporting the QCD on your tax return, why not let 1040Plus prepare your tax return? See our FAQs