Summary: The concept of qualified charitable distributions (QCDs) and how they affect taxes may seem intimidating, but when you gain a basic understanding of how they work, you begin to see the fundraising potential for small nonprofits. In this article, we explain what a QCD is, the benefits to nonprofits and donors, and key eligibility requirements.
As with anything related to finances and taxes, qualified charitable distributions (QCDs) are a little complicated. But QCDs also represent a potentially valuable new fundraising stream for small nonprofits because they allow older donors to support causes they care about while reducing their taxable income in retirement.
Let’s talk about QCDs in plain, simple language so your nonprofit can begin working on strategies for engaging donors.
What Is a QCD?
A QCD is a tax-free transfer of funds directly from a traditional IRA to a qualified charity. In other words, instead of moving money from an IRA into your bank account, paying tax, and donating the money, funds go directly from the IRA to the nonprofit. It’s not considered taxable income.
What Are the Benefits of QCDs for Nonprofits and Donors?
QCDs allow donors to give to nonprofits from an IRA while reducing taxable income, even if deductions aren’t itemized. This creates valuable benefits for nonprofits and older donors who are responsible for such a high percentage of charitable giving.
- The tax savings from a QCD may allow donors to increase the size of their gifts.
- Donors can apply QCDs to their required minimum distributions (RMDs) without increasing their income.
- For example, suppose you have to take a $10,000 RMD. If you donate $10,000 using a QCD, you satisfy that RMD without paying income tax. Without the QCD, the $10,000 transfer from your IRA to your bank account would be taxed and you may or may not get a deduction on your donation.
- Donors can potentially avoid moving into a higher tax bracket.
Key Eligibility Requirements for QCDs in 2026
- Age: You must be at least 70 ½ years old on the day of the distribution. This is different than the age requirement (73) for required minimum distributions (RMDs).
- Annual Limit: $111,000 for individuals. $222,000 for married couples filing jointly if both have IRAs. Married couples can also do separate QCDs.
- Account Types: Traditional IRAs, inherited IRAs, rollover IRAs, simplified employee pension (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs.
- Ineligible Account Types: 401(k), 403(b) and other employer plans must be rolled into an IRA first.
- Charity Types: 501(c)(3) public charities. You cannot make a QCD to a donor-advised fund (DAF) or most private foundations.
- Timing: A QCD must be completed by December 31 to count for that tax year and processed as a QCD prior to the transfer of funds.
What Should You Do Now?
This is very basic information about QCDs for nonprofits and should not be considered financial or tax advice. We strongly encourage you to speak with your financial advisor and your accountant. Ask questions. Gather information. Become comfortable enough with QCDs so you can begin to explain the very basics to your nonprofit’s supporters.
In future blogs, we’ll discuss best practices for tracking QCDs in your donor management software and how to market QCDs to older donors in a way that’s easy to understand.
