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Question: Can I make a qualified charitable distribution (QCD) from my 401(k) this year?
Answer: No, QCDs cannot be done from a 401(k) or other workplace retirement plan. A QCD can only be done from an individual retirement account (IRA).
People age 70½ and older can transfer up to $108,000 in 2025 from a traditional IRA directly to charity. QCDs can count as all or part of your required minimum distribution (RMD), but they are not taxable, and they are not added to your adjusted gross income. The QCD strategy is a good way to get tax savings from charitable gifts for taxpayers who don’t itemize because of higher standard deductions.
Question: Someone told me that my IRA custodian must transfer QCD money directly from the IRA to the charity. Is this true?
Answer: It depends on the IRA custodian. It is true that only transfers from your IRA directly to charity are considered QCDs, but IRA custodians have different procedures for complying with this. Some require that the check go directly from the custodian to the charity. Others will, at the account owner’s request, have the check written from the IRA and send the check to the IRA owner to forward to the charity. Vanguard, for example, allows this second approach. Both procedures work. What is not acceptable is for the custodian to write the check to the IRA owner, who then deposits the money and writes a check from his or her own account to the charity.
Question: I’ve been receiving requests from my alma mater about doing a QCD through a charitable gift annuity. I thought QCDs could go only to a section 501(c)(3) charity. Have the rules changed?
Answer: As a general rule, in a QCD, the money must go to a section 501(c)(3) organization. The 2022 SECURE 2.0 legislation, however, provides an easing to this. It allows IRA owners to do a one-time—not annual—QCD (of up to $55,000 for 2025) through a charitable gift annuity, a charitable remainder unitrust or a charitable remainder annuity trust. Many private colleges with charitable gift annuity programs are touting the QCD option. If you already did this in 2023 or 2024, you can’t do it again.
Question: I am working and made a tax-deductible contribution of $3,500 to my traditional IRA in 2024. I also did a QCD that year. My accountant told me that I don’t get the full advantage of the QCD because I also contributed to my IRA. Is that true?
Answer: Yes. There’s a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after age 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until it’s used up. Post-70½ deductible contributions to a SEP or SIMPLE IRA aren’t affected.
Here’s an example: A 75-year-old working man made tax-deductible contributions to his traditional IRA for 2021, 2022, 2023 and 2024, totaling $23,000. In 2025, he does his first QCD, transferring $20,000 from his IRA directly to charity. He would owe income tax on the full $20,000 because it is less than the $23,000 amount of his post-70½ tax-deductible IRA contributions. If in 2026 he transfers another $15,000 to charity directly from his IRA, $12,000 will be a non-taxable QCD, and $3,000 will be treated as a normal distribution.
Question: What is the maximum QCD my wife and I can make for 2025?
Answer: You and your spouse can each potentially give up to $108,000 in QCDs from your separate IRAs, for a total maximum QCD of $216,000. But let’s say you have a $70,000 balance in your IRA, and your wife has an IRA worth $1.2 million. In this situation, your QCD cap is $70,000, and your wife’s QCD cap is $108,000. Your wife won’t be able to make a QCD of $146,000 to make up for the deficit.
The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
