A charitable IRA rollover, also known as a Qualified Charitable Distribution (QCD), is a provision that allows individuals who are age 70½ or older to directly transfer funds from their Individual Retirement Account (IRA) to a qualified charitable organization. Here’s how charitable IRA rollovers typically work:

  1. Eligibility: To be eligible for a charitable IRA rollover, you must be at least 70½ years old. This provision applies to traditional IRAs, Roth IRAs, and inherited IRAs.
  2. Direct transfer: Instead of taking a distribution from your IRA and then making a charitable donation, a charitable IRA rollover allows you to transfer funds directly from your IRA to a qualified charitable organization. The transfer must be made directly by the IRA custodian to the charity.
  3. Contribution limit: The maximum amount that can be transferred as a charitable IRA rollover is $100,000 per year per individual. This amount is not subject to federal income tax and is not included in your taxable income.
  4. Qualified charitable organizations: The recipient of the charitable IRA rollover must be a qualified charitable organization recognized by the IRS. This includes public charities, private operating foundations, and certain types of donor-advised funds.
  5. RMD requirement: If you are subject to Required Minimum Distributions (RMDs) from your IRA, a charitable IRA rollover can count towards meeting your RMD for the year. The transferred amount can be used to satisfy some or all of the RMD requirement.
  6. Tax benefits: The amount transferred as a charitable IRA rollover is not taxed as income, providing a tax advantage for individuals who do not need the full amount of their RMD for personal expenses. Additionally, since the transferred funds do not count as taxable income, they may help reduce the impact of certain income-based phaseouts or limitations.
  7. Documentation: It’s important to retain proper documentation of the charitable IRA rollover, including receipts or acknowledgments from the charitable organization, for tax reporting purposes.