In year-end legislation, the Consolidated Appropriations Act of 2016 finally made permanent qualified charitable distributions (QCDs) from individual retirement accounts.Some IRA owners  made QCDs earlier this year, anticipating QCDs made on or after Jan. 1, 2015 would be recognized for federal income tax purposes.  That bet turned out to be a winner.

Because QCDs are finally permanent, now’s a good time to review the rules.

Benefits of QCDs

A QCD permits annual direct transfers to a qualified charity totaling up to $100,000 of tax-deferred IRA savings. Funds that have been distributed from the IRA to the IRA owner and are then contributed to charity can’t so qualify. QCDs offer advantages over taking a taxable IRA distribution and then contributing the proceeds of that distribution to a charity. That’s because taxable IRA distributions must be included in adjusted gross income. As a result:

  • Income taxes on Social Security benefits can increase,
  • Adjusted gross income (AGI) limitations on annual charitable deductions can defeat current deduction of the charitable contribution of IRA distribution proceeds (carryovers to a limited number of future tax years is available),
  • AGI limitations trimming itemized deductions can apply, and
  • Medicare insurance premiums can increase.

QCDs avoid those results.

Importantly, QCDs automatically satisfy required minimum distributions (RMDs) for the year when the QCD is made. That’s a real advantage for a charitably minded IRA owner who doesn’t need RMDs to live on.


Only individuals who’ve attained age 70 ½ may make QCDs. For example, virtuoso violinist and conductor Itzhak Perlman attained age 70 ½ on Aug. 31, 2015. A direct transfer from his IRA to the New York Philharmonic on or before Aug. 30, 2015 wouldn’t have harmonized with QCD requirements.

The charitable donee must be an organization that qualifies for a charitable income tax deduction of an individual, other than a private (grant-making) foundation, a donor-advised fund or a supporting organization under Internal Revenue Section Section 509(a)(3). 

The charity that receives the donation must provide the same contribution acknowledgment needed to claim a charitable income tax deduction. Failure to obtain the acknowledgment will quash the QCD.

QCDs may be made from any IRA or individual retirement annuity, but not from a simplified employee pension, a simple retirement account or  an inherited IRA.

Making The Contribution

To make a contribution, contact the intended charity to determine the exact payee name for the check. Then, using that name, instruct your IRA trustee or custodian to make a transfer from the IRA directly to charity. Many trustees and custodians already have forms and procedures in place to make this transfer. It won’t qualify if the trustee or custodian makes the mistake of putting IRA money in a non-IRA account of yours as an intermediate step. It won’t qualify if the check is made out to you. The law doesn’t provide a way to correct mistakes. The Internal Revenue Service hasn’t said whether the check may be made payable to the charity but mailed to you so that you may deliver it to the charity yourself.

Be sure to obtain a letter of acknowledgment from the charity.

More Than One IRA

Let’s say Maestro Perlman has two IRAs: IRA A and IRA B-flat. Each IRA is worth $100,000. Each IRA holds $80,000 of pre-tax funds that will be taxable upon distribution and after-tax funds, or basis, of $20,000. Perlman causes all of IRA A to be transferred to the New York Philharmonic. Is IRA B-flat affected in any way?  It turns out that it is.

Perlman is treated as having made an $80,000 QCD from IRA A, plus a $20,000 QCD from IRA B-flat. After the contributions have been made, IRA A is closed. IRA B-flat still holds $100,000, but Perlman’s basis in that IRA is now $40,000 instead of $20,000. That saved Perlman the trouble and risk of having to carefully contribute $80,000 from IRA A and contribute $20,000 from IRA B-flat.

Here’s why. A QCD can only consist of deferred taxable income residing in an IRA. Because the goal is to avoid income recognition resulting from an IRA distribution, there’s no need to confer QCD status on what would otherwise constitute a tax-free IRA distribution. Fortunately, the QCD rules provide that Perlman’s IRAs are aggregated to determine how much deferred taxable income is treated as passing to charity.2 The amount of the transfer is deemed to consist of deferred taxable income, potentially from all IRAs. But, helpfully, there’s an ordering rule. The QCD comes first from the contributing IRA (in this case, IRA A), then from any other IRAs (in this case, IRA B-flat). Only after the charitable transfer exceeds the sum of deferred income in both IRAs is there a transfer of funds having income tax basis.

Unfortunately, IRS Publication 590-B doesn’t discuss the multiple IRA rule.

Cash vs. Property

Because the tax code always deems only deferred taxable income to have been distributed in a QCD, it won’t matter whether cash or property is transferred to the charitable donee, as long as there’s at least as much pre-tax value to cover the contribution. For example, securities held in an IRA can be transferred from an IRA to a charity. The value of the securities will be treated as first carrying out deferred taxable income, up the value of the securities. The IRA’s basis in the securities won’t matter.


1. H. R. 2029, P.L ____, at Title I, Subtitle A, PART 1, Section 112, striking Internal Revenue Code Section 408(d)(8)(F).

2. IRC Section 408(d)(8)(d).

Michael J. Jones