Charitably inclined individuals looking to maximize charitable impact and minimize taxes have a few options. Two of the more popular ones are using Donor Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs). In Part 1 of our series on charitable giving strategies, we provided some things to consider when Choosing Between a DAF and QCD. Below, in Part 2 of this series, we answer the DAF and QCD questions we get asked most often:
What is the age requirement to use a QCD?
The QCD eligibility age is 70.5. Despite legislation increasing the age that IRA Required Minimum Distributions (RMDs) must begin to age 72 (73 if you reach age 72 after Dec. 31, 2022), the QCD eligibility age remains 70.5. This mismatch means QCDs can be used before RMDs begin if the situation makes practical and strategic sense.
How much can I gift using a Qualified Charitable Distribution?
The limit is $100,000 per person annually. This is true even if your IRA RMD is below $100,000. A married couple could transfer $100,000 from each respective IRA for $200,000 total, provided each person was at least 70.5 years old. This maximum amount has been fixed but is scheduled to start increasing with annual inflation adjustments starting in 2024.
How much can I gift using a Donor Advised Fund?
There is no statutory limit, but the amount that may be tax deductible could be restricted. The value of charitable gifts that can be deducted in one year usually ranges from 20% to 60% of the donor’s adjusted gross income (AGI). If a limitation applies to a gift of cash or securities, it may be possible to carry forward tax-benefits to a future year. AGI limits do not apply to QCDs.
If I use a QCD for an amount more than my IRA RMD this year, can the excess reduce my RMD next year?
No. A QCD that exceeds your IRA RMD cannot be carried over or used to meet the minimum distribution for future years. However, the QCD does reduce the balance in the IRA, which effectively lowers future required distributions.
Can I send a QCD to a DAF?
No. A QCD cannot be sent to a DAF or a private foundation. Rules starting in 2023 did open a new opportunity to use a QCD to fund a Charitable Remainder Trust or Charitable Gift Annuity. We provide more insight on that topic here: New Charitable Giving Strategies for Retirees.
If you are considering taking advantage of these tax-smart charitable giving strategies please contact your Heritage Wealth Manager so they can help determine the best strategy for you.
