QCD Timing
By Andy Ives, CFP®, AIF®
IRA Analyst
Year after year, this topic continues to bubble up. Confusion exists over when a QCD can be done in relation to the RMD. Qualified charitable distributions (QCDs) can offset all or a portion of an RMD (required minimum distribution). However, for whatever reason, the sequencing of these items (QCDs and RMDs) confounds people. Let’s set the record straight, starting with some QCD fundamentals:
- QCDS are only available to IRA owners who are age 70½ and over.
- For 2024, the QCD cap is $105,000. (This cap increases to $108,000 in 2025.)
- QCDs cannot be done from employer plans – like a 401(k).
- Yes, QCDs can be done from an inherited IRA if the owner is 70 ½ or older. (It does not matter how old the now-deceased previous owner was.)
- Donations paid directly from an IRA to an eligible charity may be excluded from income. However, there can be no benefit back to the taxpayer.
That’s the easy part. This next section is where the confusion starts:
A popular recommendation is to execute a QCD early in the year to avoid any conflict with the “first-dollars-out rule.” The first dollars withdrawn from an IRA are deemed to count toward the RMD. Once an RMD is taken, it cannot be retroactively offset with a later QCD. Hence the advice to do your QCDs early to avoid this mistake.
Example: John is 75 in 2024. The RMD on his IRA is $5,000. John committed to his church that he would gift this full amount. Prior to doing any QCDs, John takes a $2,000 distribution from his IRA in January 2024 to help pay the credit card bills from the previous holiday. Now it is December 2024. John informs his advisor that he would like to offset his entire RMD with a QCD. John cannot retroactively offset the $2,000 he took back in January. That $2,000 will be taxable. Since John has $3,000 remaining on his 2024 RMD, he has a handful of QCD options:
- John can do a $3,000 QCD to his church to offset the remaining portion of his RMD, but this would leave him short of his donation commitment.
- To meet his commitment, John can still do a $5,000 QCD to his church. This will result in $7,000 being withdrawn from his IRA for the year. This is perfectly acceptable, assuming John is willing to withdraw more than his RMD.
- In fact, John could do a QCD of $105,000 to his church. The total QCD amount is NOT limited to the RMD amount. The end result would be $107,000 distributed from his IRA, with only $2,000 being taxable to John.
The point is that QCDs can be done at any time throughout the year. QCDs can also be done after all or a portion of the RMD has already been taken. The only reason it is suggested to do QCDs early is to avoid what John did – mistakenly take a taxable distribution that cannot be retroactively offset with a future QCD.
End Note: Since 2024 is coming to a close, there is another reason to do QCDs early: Some IRA accounts allow check-writing privileges. Checks written to a charity from a “checkbook IRA” qualify as a valid QCD. However, the custodian may not recognize the distribution until the check is cashed! That could be in early 2025…and then we have problems.