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December 3, 2019
Qualified Charitable Distributions from Individual Retirement
Accounts
Summary
Congress created incentives for charitable giving through
qualified charitable distributions (QCDs) from individual
retirement accounts (IRAs). The 2017 tax law (P.L. 115-97)
may promote greater use of QCDs because certain
taxpayers who do not itemize their tax return are likely to
benefit from the QCD.
A provision of the Pension Protection Act of 2006 (P.L.
109-280) established the QCD, which allows individuals
aged 70½ or older to contribute directly to a qualified
charity from their IRA while excluding the distribution
from their taxable income.
This provision was made permanent by the Protecting
Americans from Tax Hikes Act of 2015 (Division Q of P.L.
114-113). Prior to its permanent enactment, several laws
had extended this provision on a one- or two-year basis.
Qualified Charitable Distributions
Traditional and Roth IRAs are tax-advantaged accounts that
certain individuals or married couples can establish to
accumulate funds for retirement. Contributions to
traditional IRAs can be tax deductible, but withdrawals are
included in taxable income. Roth IRA contributions are not
tax deductible, but withdrawals are generally tax free.
Account owners must begin taking annual withdrawals
from traditional IRAs-called required minimum
distributions (RMDs)-at age 70½. These distributions
must be included in gross income in the year the
distribution occurs, and income taxes must be paid on the
distribution's taxable portion. Roth IRAs do not require
account withdrawals during an owner's lifetime because
contributions are generally made on an after-tax basis. For
more information on IRAs, see CRS Report RL34397,
Traditional and Roth Individual Retirement Accounts
(IRAs): A Primer.
Section 1201 of the Pension Protection Act of 2006 (P.L.
109-280) established QCDs, which allow individuals aged
70½ or older to exclude IRA distributions made directly to
a qualified charity from gross income (26 U.S.C. §
408 [d] [8]). QCD features are as follows:
* Individuals must be older than 70½ when the QCD is
made;
* Charities must be eligible to receive tax-deductible
charitable distributions;
* Contributions must be from traditional IRAs. Certain
circumstances may permit QCDs from Roth IRAs, but
they are likely uncommon because qualified
distributions (i.e., withdrawals that meet certain
guidelines) are not included in taxable income (see
following bullet point). QCDs cannot be made from
ongoing employer-sponsored IRAs (Simplified
Employee Pensions [SEP-IRAs] and Savings Incentive
Match Plan for Employees [SIMPLE-IRAs]) or from
defined contribution retirement plans (e.g., 401 [k] plans
or 403[b] plans);
* The portion of any distribution that qualifies as a QCD
must come from deductible contributions and earnings
(i.e., the distribution would have been otherwise
included in taxable income). If an IRA includes
deductible and nondeductible contributions, the
distribution first comes from deductible (i.e., taxable)
funds, then from any nondeductible IRA contributions.
This feature allows for a larger amount of nondeductible
(and, therefore, nontaxable) funds to remain in the IRA
for later distributions by the individual;
* QCDs count toward an individual's RMD (e.g., an
individual who is required to take a distribution of
$5,000 in a year may elect to make a QCD of $3,000, so
that the individual only has to withdraw the remaining
$2,000 and include it in taxable income);
* The distribution must be a trustee-to-trustee transfer;
that is, a direct transfer from the IRA to the charity;
* The maximum QCD is $100,000, although a spouse can
also make a $100,000 QCD if the couple files a joint
income tax return; and
* The $100,000 maximum QCD does not apply to the
overall charitable deduction limit, under which income
tax deductions for charitable contributions generally
may not exceed 60% of adjusted gross income (AGI).
Thus, individuals may make charitable contributions in
excess of 60% of AGI using a QCD.
Absent the QCD, some taxpayers who itemize their tax
return could achieve the same reduction in their taxable
income by including the IRA distribution in gross income,
donating the distribution to a charity, and taking a tax
deduction for the donation. The QCD's structure allows
taxpayers who do not itemize their tax deductions or whose
charitable contributions exceed 60% of their gross income
can benefit from the QCD.
The 2017 tax law (P.L. 115-97), commonly known as the
Tax Cuts and Jobs Act, increased the standard deduction-
the dollar amount by which taxable income is reduced-for
many taxpayers. Figure 1 in CRS Report R45145, Overview
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