Get the word out about IRA qualified charitable distributions

The SECURE 2.0 Act made some enhancements to IRA qualified charitable distributions (QCDs) that may benefit your nonprofit organization - so long as donors know about them. You can encourage your supporters to contribute more by communicating these new rules and their tax advantages.

QCDs to RMDs

Qualified Charitable Distributions (QCDs) were established in 2006 and became permanent in 2015. Taxpayers aged 70 1/2 or older are allowed to make QCDs up to an annual limit from their IRAs directly to a qualified charity. 

A charitable deduction cannot be claimed for a QCD, but the QCD amount is excluded from the donor's taxable income. The QCD can also be used to satisfy the IRA owner's required minimum distribution (RMD) if applicable. 

SECURE 2.0 Enhancements

In 2022, the SECURE 2.0 law was signed, introducing significant enhancements to Qualified Charitable Distributions (QCDs). The annual distribution limit, previously set at $100,000, is now adjusted for inflation - $105,000 in 2024.

SECURE 2.0 also introduced a new QCD opportunity starting in 2023. Taxpayers can now make a once-per-lifetime QCD of up to $50,000, annually adjusted for inflation (reaching $53,000 in 2024), through a split-interest entity. These include charitable gift annuities, charitable remainder annuity trusts, and charitable remainder unitrusts. Split-interest entities generally allow donors to make gifts to your nonprofit while creating an income stream for themselves. After a specified period, the remaining balance goes to the organization.

Similar to regular QCDs, the amount of a split-interest entity QCD isn't tax-deductible, but it counts toward Required Minimum Distributions (RMDs) and isn't included in the donor's taxable income. Additionally, spouses can each make a QCD to the same split-interest entity to double the gift. These entities are required to pay a minimum fixed percentage of 5% annually for the life of the donor or the donor's spouse, and these payments are taxed as ordinary income. 

Boost donations

Consider preparing a presentation, brochure, or both, to explain how Qualified Charitable Distributions (QCDs) work and emphasize the tax advantages for donors. A QCD might be especially tax-smart for donors who:

• Cannot benefit from the charitable deduction because their total itemized deductions for the year won't exceed the standard deduction for their filing status, or
• Want to donate more to charity during the year than they can deduct due to adjusted gross income (AGI)-based limits on their charitable deduction. In general, deductions for cash gifts to public charities can't exceed 60% of AGI and deductions for donations of long-term capital gains property to charities can't exceed 30% of AGI. 

However, it's important not to limit the education campaign to these technicalities. Supporters increasingly are interested in outcomes. Be as specific as possible about how you'll apply a donor's QCD - for example, to fund a new program or facility, or to pay for additional staff. 

Qualified Recipients

Note that donor-advised fund sponsors, private foundations, and supporting organizations continue to be ineligible as QCD recipients. You should make certain that your nonprofit is allowed to accept - and is set up to receive - QCDs. 

Contact us if you have any questions or need help.  

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