Qualified Charitable Distributions (QCDs) come up frequently in planning conversations, but the logistics can feel complex. Here’s a concise example to illustrate how to navigate them with confidence.
Scenario:
Margaret, age 74 and a longtime client, schedules a meeting to discuss
charitable giving. She recently began taking required minimum distributions
(RMDs) from her IRA and is concerned about her taxable income. She already
maintains a donor-advised fund at the Community Foundation and enjoys both the
structure and the community connection it offers.
During the meeting, Margaret asks whether a QCD would make sense in 2026, especially if she can direct it to the Community Foundation.
Advisor guidance:
You explain that a QCD allows anyone age 70½+ to direct IRA assets to qualified
charities without including those amounts in taxable income. After
RMDs begin (age 73), QCDs can satisfy all or part of the requirement and reduce
AGI—helping with Medicare premiums, Social Security taxation, and overall tax
efficiency. With inflation adjustments, the limit for 2026 is $111,000.
Margaret then asks if she can send her QCD to her donor-advised fund. You clarify that current IRS rules prohibit QCDs to donor-advised funds, even at a Community Foundation.
However, that doesn’t eliminate her options.
Eligible alternatives at the Community Foundation include:
- Designated funds (support specific nonprofits she selects),
- Field-of-interest funds (support broad causes like arts, education, or health),
- Unrestricted funds (support local needs as they emerge).
These structures are managed fully by the Community Foundation, which is why they qualify for QCDs while still aligning with donor intent.
Margaret likes the idea but worries about selecting the right option. You recommend a joint meeting with the Community Foundation to evaluate fund types, draft the fund agreement, and ensure compliance with QCD rules. She agrees, relieved that she doesn’t have to navigate the details alone.
Outcome:
You will review IRA custodian requirements, and the Community Foundation will prepare the appropriate fund. Margaret’s 2026 RMD will support her community, reduce her taxable income, and reflect her values.
Takeaway for advisors:
Clients often need help connecting the dots between tax tools and charitable intent. Partnering with the Community Foundation can simplify execution, strengthen client relationships, and support meaningful philanthropy.
Pro Tip:
Tax laws evolve—sometimes in donor-friendly ways. A bipartisan proposal is currently circulating that would allow QCDs into donor-advised funds. Stay tuned!