Broker Check
Using IRAs to Fund Your Philanthropy

Using IRAs to Fund Your Philanthropy

January 04, 2021

There are various charitable giving options that you can use to support your favorite causes. But if you’re already taking Required Minimum Distributions (RMDs) from your IRA right now--or you're turning 72 this year and have to start taking RMDs--you have another way to give. 

Qualiified Charitable Distributions: Tax reductions without quirky deductions

A Qualified Charitable Distribution (QCD) is a direct donation made from a Traditional IRA to an eligible nonprofit organization. You can make several QCDs to different charities every year, up to a maximum combined amount of $100,000 across all of your IRA accounts.  

Unlike required minimum distributions (RMDs), QCDs don’t count toward your annual taxable income. Even better, the total QCD amount may offset some or all of your annual RMD.

For example, if your RMD for 2021 is $8,500 and you make a QCD of $9,000 to charity, your RMD requirement will be satisfied and the QCD itself will not be counted toward your taxable income for the year.

One slight drawback? QCDs are not tax-deductible, so if you normally itemize charitable deductions you’ll have to count donations from other sources. Read on to explore one possible strategy to leverage Roth and Traditional IRA distributions to get the best of both worlds, taxwise.

To take advantage of QCDs in 2021 and beyond….

You must meet the following criteria:

  • You must be taking RMDs right now or have already turned 72 in 2021 before you can make a QCD. 
  • To count toward your RMD, you must make the QCD donation before your annual RMD is taken from your IRA. 
  • QCDs can only be donated to qualified 501(c)(3) charities.
  • The QCD check(s) must be made out directly to the charity.
  • QCDs cannot be used as donations to donor-advised funds, family foundations, charitable remainder trusts or other charitable giving vehicles.

The $100,000 annual limit is per individual, not account. This means if you have several IRAs, the aggregated amount you can use as QCDs across all your IRAs is $100,000. However, if you’re married and you and your spouse have separate IRAs, you each can contribute up to $100,000 per year—for a total of $200,000 per couple.

What about 401(k) plans?

Unfortunately, you can’t make QCDs from a 401(k) or other employer-sponsored retirement plan. If you want to take advantage of QCDs, consider rolling over your 401(k) plan to a Traditional IRA.

Even more benefits for Roth and Traditional IRA owners

When you have both a Traditional IRA and Roth IRA, QCDs can help you achieve your retirement income and philanthropic objectives with greater flexibility and tax-efficiency.

For example, you could use QCDs from your Traditional IRA to contribute directly to charities and reduce taxable RMD income while using tax-free Roth distributions to make additional potentially tax-deductible contributions to donor advised funds and other charitable giving vehicles that can’t be funded with QCDs.

Assuming you’re able to itemize charitable deductions, combining them with the RMD-reducing benefits of QCDs could lower your net taxable income.

Caveat: It’s not as easy as it looks

There are some catches to using QCDs. They must be made from taxable distributions. Generally, this means you can only use taxable earnings and basis (i.e. non-deductible contributions and rollover funds). You can't use after-tax contributions.  The one exception is that you can make QCDs from a Roth IRA's after-tax contributions and tax-free earnings if you have not owned the Roth for at least five years. 

When it comes to calculating taxable distributions or QCDs, the IRS requires you to treat all Traditional IRAs you own as a single aggregated account. And the rules specifying the order of IRA contributions and earnings that must be used for withdrawals can be complicated.

That’s why before you make any major decisions regarding QCDs or any other retirement account distributions, you should consult your accountant or financial advisor to make sure your actions won’t result in unintended tax consequences or throw a wrench into your retirement plans.



This article offers general information and should not be viewed as personalized tax or legal advice. Although we strive to make this information is accurate and useful, you should consult with a tax preparer, professional tax advisor, or lawyer before implementing any tax-related actions.

This article was authored by Chris Gullotti and Jeffrey Briskin. Chris is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or  Jeffrey Briskin is Director of Marketing at Canby Financial Advisors. 


©2021 Canby Financial Advisors