2024 Qualified Charitable Distributions and Gift Giving

Businesses are always looking for ways to improve their model and use resources more efficiently—nonprofit organizations are no different. Because of their reliance on charitable donations, nonprofit organizations have been adversely affected by economic turmoil, inflation, and a national decrease in charitable giving.

If you have a cause you are passionate about, now is an optimal time to pinpoint a charity you would like to support this holiday season. IRA owners age 70½ or older have the option of making a qualified charitable distribution (QCD) to make this happen.

What is a Qualified Charitable Distribution - (QCD)?

A QCD is a direct transfer from a traditional or inherited IRA made payable to a qualified charity. Transfers from inactive Simplified Employee Pension Plan (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) IRA plans apply as well. Making a QCD to support a deserving cause during this time could have an enormous impact to the organization and it may provide a tax benefit to you.

How Qualified Charitable Distributions Work

QCDs must be paid directly from an IRA to your charity of choice, which means you cannot receive a distribution directly from your IRA to then donate to a charity. In addition, you cannot receive any benefit in return for your charitable donation.

Your designated charity must be qualified to receive QCDs. Charities such as donor-advised funds, private foundations, and nonprofits that support these types of organizations are ineligible.

QCDs cannot be made from an IRA prior to the owner reaching the age of 70½.

Qualified Charitable Distribution 2024 Updates

As of 2024, there have been a few updates to the rules and regulations of QCDs, those updates being:

Increase in QCD limit in 2024

The maximum qualified charitable distribution for donors in 2024 is $105,000 or $210,000 for married couples. Additionally, if 73 or older, the transfer will also count towards the amount required to withdraw from their IRA each year (Required minimum distribution or RMD).

Increase in QCD gift annuity limit in 2024

As of 2024, the gift annuity limit has been increased to a one-time tax-free transfer up to $53,000, increased from $50,000 in 2023.

Requesting a Qualified Charitable Distribution

Requesting a QCD is relatively simple, but be sure to adhere to the following guidelines:

• In order for the distribution to count toward your required minimum distribution (RMD) for the year, the funds must be transferred directly from your IRA to the qualified charity by December 31 of that year.
• The IRA custodian must issue the check made payable to the public charity. The best practice would be to request that the check be mailed directly to the charity, and then track its arrival so you know when it has been received. If you are concerned about mailbox theft, another option is to request that the check be made payable to the charity but mailed to your personal address so you can deliver it to the appropriate individual.
• Follow up with the charity to request a receipt to document the QCD for your personal files and tax records.

Tax Implications Resulting from Qualified Charitable Distributions

Unlike a regular IRA withdrawal, a QCD excludes the withdrawn and donated amount from taxable income. You will receive a Form 1099-R from your IRA custodian, and the QCD should be reported as a Normal Distribution for the calendar year the distribution is made. You would then report the QCD on your Form 1040 accordingly.

It’s important to note that a distribution from your IRA will not qualify as a QCD – and will therefore be treated as taxable income if:

• The distribution check is made payable to you rather than the charity.
• You request a QCD prior to reaching age 70½.

If you’re eligible to make a QCD, it could be a game changer for a deserving cause and you could reap the potential tax benefits while making a positive change in the world. Your First Command Financial Advisor can help you with this process.

Qualified Charitable Distributions FAQ

Q: How do I report a qualified charitable distribution on 1040?
A: Like other IRA distributions, you can report a QCD on Line 4 of Form 1040.

Q: Are qualified charitable distributions reported on 1099?
A: Upon making a QCD, you will receive Form 1099-R for the next tax year. The total distribution from your IRA will show on this form, of which your QCD is a part. You report your QCD as part of Form 1040.

Q: Are qualified charitable distributions taxable?
A: QCD distributions are not taxed as regular income.

Q: Can you do a qualified charitable distribution from a 401K?
A: 401(k) accounts are not eligible for QCDs. One can, however, roll over funds to an IRA and make a QCD from that account.

Q: Can you make qualified charitable distributions from an inherited IRA?
A: Yes, inherited IRAs are eligible for QCDs.

Q: Are churches or religious institutions eligible for qualified charitable distribution?
A: Many religious institutions are eligible for a QCD. You will need to check with each individual institution to ensure this is possible.

First Command does not provide legal or tax advice, and this article does not contain any legal or tax advice. Any recommendations provided to you in this article are strictly for financial planning purposes only. Should you require legal or tax advice, you should consult with your attorney or tax advisor.