To do a QCD, retirees must instruct the firm that manages their IRA to direct some or all of their RMD to one or more charities. The firm must send the money directly to the charity, or send the retiree a check made out to the charity, which then must be forwarded. The IRS prohibits taxpayers from collecting the money and then donating to the QCD.
The QCD donation must be made during the calendar year for which a retiree is filing a tax return.
“We have quite a few clients who are using QCDs,” said Tim Steffen, director of advanced planning at Milwaukee-based Baird Private Wealth Management.
But retirees must be careful to report QCD donations correctly on returns, which can be a bit of a filing headache that even confuses accountants, Steffen said.
That’s because the brokerage or fund company that holds your IRA will report it on Form 1099-R as a regular IRA distribution. The taxpayer has to note on their return that it’s a QCD and not taxable.
It is also up to the taxpayer, not the broker-dealer, to make sure a charity qualifies. For record keeping purposes it’s a good idea to get a letter from the charity documenting each gift, Steffen said.