Recent changes to the rules for qualified charitable distributions (QCDs), also known as IRA charitable distributions, have brought important updates for individuals who want to give to charity directly from their retirement accounts. The SECURE 2.0 Act, which became effective for distributions made in taxable years beginning after December 29, 2022, has expanded the options and increased the limits for these tax-advantaged gifts. Here’s a detailed breakdown of what’s changed, who is affected, the effective dates, required actions, and what these updates mean for anyone considering a QCD or IRA charitable distribution.
What Has Changed: Key Updates Under the SECURE 2.0 Act
The SECURE 2.0 Act introduced several important changes to the rules for qualified charitable distributions:
- Annual QCD Limit Now Indexed for Inflation:
The maximum amount a person can transfer tax-free from their IRA to a qualified charity each year was previously set at $100,000. Starting in 2024, this limit is now adjusted for inflation. For 2024, the limit increased to $105,000, and for 2025, it will rise to $108,000 per individual. -
One-Time Election for Split-Interest Entities:
The Act allows a one-time, lifetime election to make a qualified charitable distribution of up to $50,000 (indexed to $53,000 in 2024 and about $54,000 in 2025) to certain split-interest charitable vehicles. These include charitable remainder unitrusts (CRUTs), charitable remainder annuity trusts (CRATs), and charitable gift annuities (CGAs). This option gives IRA owners a new way to support charities while also creating an income stream for themselves or their spouse. -
No Change to QCD Age Requirement:
The age at which a person can make a QCD remains at 70½, even though the age for required minimum distributions (RMDs) increased to 73 in 2023 and will rise to 75 in 2033 for those born in 1960 or later.
-
Employer-Sponsored Plans Still Not Eligible:
QCDs can only be made from traditional or Roth IRAs. Employer-sponsored retirement plans like 401(k)s, 403(b)s, SEP IRAs, and SIMPLE IRAs are not eligible for QCD treatment. -
Married Couples Can Double the Limit:
If both spouses are age 70½ or older and each has their own IRA, each can make a QCD up to the annual limit, effectively doubling the amount a couple can give tax-free in a year.
Who Is Affected by These Changes?
These updates impact several groups:
- Individuals Age 70½ or Older:
Anyone who is at least 70½ years old and owns a traditional or Roth IRA can take advantage of QCDs. The new inflation-adjusted limits allow for larger gifts over time. -
Married Couples:
Couples where both spouses are eligible can each make QCDs from their own IRAs, potentially doubling the annual tax-free giving limit. -
Charitable Donors Seeking Tax Benefits:
People who want to support charities directly from their IRAs, especially those who do not itemize deductions, benefit from the ability to exclude these gifts from their taxable income. -
Individuals Interested in Split-Interest Charitable Gifts:
The new one-time election for split-interest entities is most relevant for those who want to create a charitable gift annuity or trust, providing income for themselves or a spouse while supporting a charity.
- Taxpayers with Required Minimum Distributions (RMDs):
QCDs can count toward a person’s RMD for the year, helping to satisfy this requirement in a tax-efficient way.
Effective Dates for the New Rules
- Inflation Adjustment of QCD Limit:
The annual QCD limit began adjusting for inflation with distributions made in taxable years ending after December 29, 2022. The first increase took effect in 2024. -
One-Time Election for Split-Interest Entities:
The option to make a one-time QCD to a split-interest entity also became available for distributions made in taxable years beginning after December 29, 2022. -
Annual Updates:
Both the annual QCD limit and the one-time split-interest entity limit will continue to be adjusted for inflation each year.
Required Actions for Taxpayers
If you are considering making a qualified charitable distribution or using the new options under the SECURE 2.0 Act, here’s what you need to do:
- Check Your Age and IRA Type:
- You must be at least 70½ years old at the time of the distribution.
- Only traditional and Roth IRAs are eligible for QCDs. Employer-sponsored plans are not.
- Choose a Qualified Charity:
- The charity must be a 501(c)(3) public charity. Donor-advised funds, private foundations, and supporting organizations do not qualify.
- Direct the Distribution Properly:
- The distribution must be made directly from your IRA trustee to the charity. If you receive the funds first, the distribution will not qualify as a QCD.
- Keep Proper Records:
- Obtain a written acknowledgment from the charity, just as you would for any charitable deduction.
- Keep records for your tax return.
- Report the QCD on Your Tax Return:
- Report the total IRA distribution on Form 1040, line 4a.
- Report the taxable amount (which may be zero if the entire distribution is a QCD) on Form 1040, line 4b.
- If your IRA includes nondeductible contributions (basis), file Form 8606 to track your basis and calculate the taxable and nontaxable portions. You can find the official Form 8606 here.
- Consider the One-Time Election for Split-Interest Entities:
- If you want to use the new one-time option, work with your IRA trustee and the charity to set up a charitable remainder trust or gift annuity.
- Make sure the split-interest entity is funded only by QCDs, and that payments begin within one year if it’s a charitable gift annuity.
- Remember, this election can only be made once in your lifetime and counts toward your annual QCD limit.
- Consult a Professional:
- Because the rules can be complex, especially for split-interest gifts, it’s wise to speak with a financial advisor or tax professional before making a QCD or using the new options.
Implications for Pending and Future Applications
If you have already planned or submitted a request for a qualified charitable distribution, here’s how the changes may affect you:
- Pending QCDs for 2024 and Beyond:
If your QCD is scheduled for 2024 or later, you can take advantage of the higher annual limit ($105,000 in 2024, $108,000 in 2025). This means you may be able to give more than before without triggering taxable income. -
One-Time Split-Interest Election:
If you are considering a charitable remainder trust or annuity, you can now use up to $53,000 in 2024 (or the indexed amount in future years) from your IRA for this purpose. However, you cannot make both a $53,000 split-interest QCD and a separate $105,000 QCD in the same year—the split-interest amount counts toward your annual limit.
-
Required Minimum Distributions:
QCDs continue to count toward your RMD, so you can satisfy your annual RMD in a tax-efficient way by giving to charity. -
No Retroactive Changes:
The new limits and options apply only to distributions made in taxable years beginning after December 29, 2022. Distributions made before this date are subject to the old rules.
Practical Examples
Let’s look at a real-world scenario to see how these rules work:
SECURE 2.0 Act effective for distributions
QCD limit increases to $105,000
QCD limit increases to $108,000
One-time split-interest limit increases to $53,000
One-time split-interest limit increases to $54,000
- Example: Jeff’s QCD in 2024
Jeff, age 75, has a traditional IRA with $30,000. He directs his IRA trustee to send $25,000 directly to a qualified charity. Of this, $20,000 comes from deductible contributions and earnings, and $5,000 is from nondeductible contributions (his basis).- The $20,000 is excluded from Jeff’s income as a QCD.
- The $5,000 from nondeductible contributions can be claimed as a charitable deduction if Jeff itemizes.
- Jeff reports the total $25,000 on Form 1040, line 4a, and enters zero on line 4b for the QCD portion.
- He files Form 8606 to track his basis.
- The QCD counts toward his RMD for the year.
- Example: One-Time Split-Interest Election
Susan, age 72, wants to set up a charitable gift annuity using her IRA. In 2024, she directs $53,000 from her IRA to a qualified charity to fund the annuity. This is her one-time election, and the annuity will begin paying her at least 5% per year within one year. Susan cannot make another split-interest QCD in the future, and the $53,000 counts toward her annual QCD limit for 2024.
Expert Analysis and Guidance
According to analysis by VisaVerge.com, the inflation adjustment of the QCD limit makes this giving strategy even more attractive, especially as required minimum distributions increase over time. The new one-time split-interest option is a valuable tool for those who want to support charity while also securing income for themselves or a spouse. However, experts warn that setting up charitable remainder trusts or annuities can be complex and may involve significant administrative costs. Most individuals will find the charitable gift annuity option more practical than the trust options.
IRA Balance
$30,000
QCD Amount
$25,000
Deductible Contributions
$20,000
Nondeductible Contributions
$5,000
Tax Reporting
Total $25,000 on Form 1040, line 4a; zero on line 4b
Financial advisors recommend that anyone considering a qualified charitable distribution, especially the new split-interest options, should consult with a tax professional or planned giving expert. This ensures that the gift is structured correctly and that all tax benefits are realized.
Future Outlook
Looking ahead, the annual QCD limit and the one-time split-interest entity limit will continue to be adjusted for inflation. This means the amount you can give tax-free from your IRA will likely increase each year. There are no current plans to expand QCDs to employer-sponsored plans or to change the age requirement. The IRS is expected to provide more guidance on the administrative details of these rules, especially for split-interest gifts.
Official Resources and Where to Get Help
For the most up-to-date information on qualified charitable distributions, including forms and instructions, visit the IRS official QCD page. If you are interested in setting up a charitable gift annuity or remainder trust using a QCD, contact the charity’s planned giving department or a financial advisor who specializes in charitable planning.
If you need to file a QCD, make sure to use the latest version of Form 8606 if your IRA includes nondeductible contributions, and follow the instructions for reporting on Form 1040.
Actionable Takeaways
- Check your eligibility: You must be at least 70½ and have a traditional or Roth IRA.
- Know the new limits: For 2024, the QCD limit is $105,000; for 2025, it’s $108,000. The one-time split-interest limit is $53,000 in 2024.
- Plan your giving: Decide if you want to make a direct QCD or use the new split-interest option.
- Work with professionals: Consult your IRA trustee, the charity, and a tax advisor to ensure your gift is handled correctly.
- Keep good records: Save all acknowledgments and file the correct forms with your tax return.
By staying informed and taking the right steps, you can make the most of the new rules for qualified charitable distributions and support the causes you care about in a tax-smart way.
Learn Today
Qualified Charitable Distribution (QCD) → A tax-free transfer from an IRA to a qualified charity by those aged 70½ or older.
SECURE 2.0 Act → Legislation effective after December 29, 2022, updating retirement and charitable distribution rules.
Split-Interest Entity → Charitable arrangements providing both charitable benefits and income to donors or spouses.
Required Minimum Distribution (RMD) → The minimum annual withdrawal IRA owners aged 73 or older must take from their accounts.
Form 8606 → IRS form used to report nondeductible IRA contributions and track basis for tax purposes.
This Article in a Nutshell
The SECURE 2.0 Act raised QCD limits to $105,000 in 2024, indexed for inflation. A new one-time split-interest option allows charitable gifts supporting income streams. QCDs remain limited to IRAs, benefiting donors 70½ and older by enabling larger, tax-efficient charitable giving directly from retirement accounts.
— By VisaVerge.com
