8112 / What is a charitable IRA rollover or qualified charitable distribution?

For tax years 2006 and thereafter, a taxpayer age 70½ or older is eligible to make a qualified charitable distribution from an IRA that is not includible in the gross income of the taxpayer. This provision was made permanent by the PATH Act of 2015.¹

---

Planning Point: While the required beginning date for RMDs is age 73 for 2023-2032, taxpayers remain eligible to execute a QCD starting at age 70½.  High-net worth taxpayers who don’t anticipate a need for their IRA funds and have yet to reach their RBD may consider executing a QCD earlier to reduce their overall IRA balance—and thus reduce their future RMD obligations.

---

A qualified charitable distribution is any distribution

1. not exceeding $105,000 in the aggregate during the taxable year (as indexed for 2024, the limit was $100,000 for 2023)²;


2. made directly, in a trustee-to-charity transfer;


3. from a traditional or Roth IRA (distributions from SEPs and SIMPLE IRAs do not qualify); the prohibition on making a qualified charitable distribution from a SEP IRA or a SIMPLE IRA only applies to “ongoing” SEP IRAs or SIMPLE IRAs. Such an IRA is “ongoing” if a contribution is made to it for the taxable year of the charitable distribution;³

---

Planning Point: A participant in a qualified plan, an IRC Section 403(b) tax sheltered annuity, or an eligible IRC Section 457 governmental plan must first perform a rollover to a traditional IRA before taking advantage of a charitable IRA rollover. Ted R. Batson, Jr., MBA, CPA, and Gregory W. Baker, JD, CFP®, CAP, Renaissance Administration, LLC.

---

4. to a public charity (but not a donor-advised fund or supporting organization);

---

Planning Point: Rollovers to donor-advised funds, supporting organizations, private foundations, charitable remainder trusts, charitable gift annuities, and pooled income funds are not qualified charitable distributions. Ted R. Batson, Jr., MBA, CPA, and Gregory W. Baker, JD, CFP®, CAP, Renaissance Administration, LLC.

---

5. that would otherwise qualify as a deductible charitable contribution—not including the percentage of income limits in IRC Section 170(b);

6. to the extent the distribution would otherwise be includible in gross income.⁴

No charitable income tax deduction is allowed for a qualified charitable distribution.⁵

---

Planning Point: Rollovers to charities by taxpayers who reside in states that tax IRA distributions and do not have a charitable deduction may not escape tax at the state level. Ted R. Batson, Jr., MBA, CPA, and Gregory W. Baker, JD, CFP®, CAP, Renaissance Administration, LLC.

---

If a qualified charitable distribution is made from any IRA funded with nondeductible contributions, the distribution is treated as coming first from deductible contributions and earnings.⁶ This is contrary to the general rule that distributions from an IRA with both deductible and nondeductible contributions are deemed made on a pro-rata basis.⁷

Qualified charitable distributions may count toward a taxpayer’s unsatisfied required minimum distributions for the year.⁸

For guidance on qualified charitable contributions (including questions and answers), see Notice 2007-7.⁹

The American Taxpayer Relief Act of 2012 extended the ability to make qualified charitable distributions for tax years 2012 and 2013. Because the law was not passed until January 2013, the law included special provisions for donors to make gifts in January of 2013 to qualify for the 2012 year. The provisions were that an IRA owner can treat a contribution made to a qualified charity in January of 2013 as a 2012 qualified charitable distribution if:

1. The contribution was made in cash from the donor to the qualified charity of all or a portion of an IRA distribution made to the IRA owner in December 2012 provided that the contribution would have been a 2012 qualified charitable distribution if it had been paid directly from the IRA to the qualified charity in 2012, or


2. The contribution is paid directly from the IRA to the qualified charity, provided that the contribution would have been a 2012 qualified charitable distribution if it had been paid in 2012.

A qualified charitable distribution made in January 2013 that was treated as a 2012 qualified charitable distribution satisfied the IRA owner’s 2012 required minimum distribution if the amount of the qualified charitable distribution was equal to or greater than the 2012 required minimum distribution. However, no part of such a qualified charitable distribution could be used to satisfy the 2013 required minimum distribution, even if the 2012 required minimum distribution had already been made. In determining the required minimum distribution for 2013, the 2012 qualified charitable distribution had to be subtracted from the December 31, 2012 IRA account balance.

Post-SECURE Act, taxpayers who make both post-70½ (deductible) IRA contributions and take qualified charitable distributions (QCDs) are also subject to an anti-abuse rule. Future QCDs are reduced by the total amount of deductible post-70½ IRA contributions that have not offset another QCD, although the amount cannot be reduced below zero.¹⁰ Amounts that cannot be treated as a pre-tax QCD can be treated as an itemized deduction for the taxpayer.

Example: An individual who turned age 70½ before 2020 deducts $5,000 for contributions for each of 2020 and 2021 but makes no contribution for 2022. The individual makes no QCDs for 2020 and makes QCDs of $6,000 for 2021 and $6,500 for 2022.

The excludable amount of QCDs for 2021 is the $6,000 of QCDs reduced by the $10,000 aggregate amount of post-age 70½ contributions for 2021 and earlier taxable years. For this individual, these amounts are $5,000 for each of 2020 and 2021, resulting in no excludable QCDs for 2021 (that is, $6,000 – $10,000 =
($4,000)).

The excludable amount of the QCDs for 2022 is the $6,500 of QCDs reduced by the portion of the $10,000 aggregate amount of post-age 70½ contributions deducted that did not reduce the excludable portion of the QCDs for earlier taxable years. Thus, $6,000 of the aggregate amount of post-age 70½ contributions deducted does not apply for 2022 because that amount has reduced the excludable amount of QCDs for 2021. The remaining $4,000 of the aggregate amount of post-age 70½ contributions deducted reduces the excludable amount of any QCDs for subsequent taxable years. Accordingly, the excludable amount of the QCDs for 2022 is $2,500 ($6,500 – $4,000 = $2,500). As described above, because the $4,000 amount reduced the excludable amount of QCDs for 2022, that $4,000 amount does not apply again in later years, and no amount of post-age 70½ contributions remains to reduce the excludable amount of QCDs for later taxable years.¹¹