QCDs or Qualified Charitable Distributions transfer money from pre-tax accounts directly into a Charitable account. This direct distribution of pre-tax dollars to a charity will not be recognized as income and not added to your tax filing since it is under a QCD transaction. The distribution sent to the charity is usually part or the entire annual RMD (required minimum distribution) amount. QCDs are often used when they help avoid income taxes and increased Medicare premiums for RMDs that are not needed to fund lifestyle spending.
The pairing of QCDs and RMDs used occurs at the same age but not anymore. This has created a disconnect between the QCD and the RMD age for regular pre-tax accounts. QCD rules permit that QCDs begin at age 70½ but Required Minimum Distribution (RMD) age has changed from 70½ to 73+ (depending on your birth year) on saved regular pre-tax accounts. Since there is no requirement to make a pre-tax distribution until age 73+, QCDs shouldn’t be used until the start of RMD age.
On the other hand, for inherited IRAs, QCDs can begin at age 70½.
Edi Alvarez, CFP®
BS, BEd, MS