A Qualified Charitable Distribution (QCD) is a tax-efficient way to fulfill your required minimum distribution (RMD) by donating money directly from your IRA to a qualified charitable organization. This unique strategy allows you to satisfy your RMD while also supporting a cause you care about.
The process is relatively straightforward – instead of taking money out of your IRA and paying income taxes on it, you transfer funds directly to a charity, up to a maximum of $100,000 per year. The RMD transferred directly to a charity will be excluded from your taxable income. This will reduce your taxes and help your favorite charity.
A Qualified Charitable Distribution is an excellent strategy if you made IRA or 401k contributions while you were working to reduce your income taxes, but now realize you don't need the RMD income, and you certainly don't want the tax hit from taking the RMD. If this is your situation, using a Qualified Charitable Distribution is a win-win for you and your charity.