As nonprofit professionals, we often serve as trusted philanthropic advisors for our donors, helping to align their values and goals with their passion for our mission. One of the most powerful tools for donors aged 70½ and older is the Qualified Charitable Distribution (QCD). 

Understanding how QCDs work can help you guide donors toward strategies that reduce their tax liabilities and maximize their charitable impact.

What is a QCD, and Why Does It Matter?

A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an IRA to a qualified charity, allowing donors to fulfill their charitable intentions while reducing their taxable income. As of 2024, donors can transfer up to $105,000 annually from their IRA through a QCD. Additionally, individuals 70 ½ can create a Charitable Gift Annuity (CGA) or Charitable Remainder Trust (CRT) with a one-time QCD of up to $53,000 as of 2024.

Benefits to Donors:

• QCDs are excluded from a donor’s adjusted gross income (AGI), lowering tax liability on retirement income. This reduction may also positively impact Social Security benefits and Medicare premiums.
• QCDs allow donors to address Required Minimum Distributions (RMDs) and mandatory withdrawals from retirement accounts starting at age 73. By initiating QCDs early, donors gain better control over their tax situation, potentially reducing the size of future RMDs and avoiding a significant tax burden later.
• Donors achieve their philanthropic goals with immediate tax advantages, all while potentially securing a reliable income stream through CGAs or CRTs.

Benefits to Nonprofits:

• QCDs offer a tax-efficient giving strategy for donors, encouraging more substantial and frequent donations. The direct transfer of funds can help nonprofits meet immediate financial needs and secure long-term sustainability.
• QCDs can create a steady stream of donations, making them a dependable source of revenue for nonprofits, especially when used to fund CGAs or CRTs.

Benefits of Using QCDs to Fund Charitable Gift Annuities (CGAs) or Charitable Remainder Trusts (CRTs):

Income Generation:

• A CGA provides fixed payments for life, ensuring financial security for the donor.
• A CRT can offer fixed or variable income.

Tax Efficiency:

• Donors can fulfill their RMD obligations and avoid income taxes on the transferred amount.

Legacy and Charitable Impact:

• Both CGAs and CRTs allow donors to support charitable causes while still providing for their heirs. After their lifetime or the trust term, the remaining assets are distributed to the charities of their choice, leaving a lasting legacy.

By incorporating QCDs into your donor engagement strategies, you can help donors reduce their tax burdens, meet their financial goals, and support your mission in a meaningful way.

Want to learn more about how QCDs can boost your nonprofit’s funding while helping donors maximize their impact? Start by educating your team on these strategies and begin conversations with your donors today!