Shakespeare Blog: View from the Lake
Logistics of Qualified Charitable Distributions (QCDs)
Written By: Ryan Rink, CFP®, EA, ChFC®, CLTC®
What is a Qualified Charitable Distribution (QCD)?
If you are over age 70.5 and have an individual retirement account (IRA), a qualified charitable distribution can be one of the best ways to make donations to your favorite charities. You can donate up to $100,000 from your IRA each year to qualified 501(c)(3) charities. The biggest tax benefit of a QCD is that you don’t need to report any of the donations (withdrawals from your IRA) as taxable income. It’s important to note that QCDs can only be made from IRA accounts – qualified retirement plan accounts (such as 401(k)s and 403(b)s) do not qualify.
If you are over age 72 and must take a required minimum distribution (RMD) from your IRA, a QCD is permitted to count towards your RMD amount.
Example: If your 2021 RMD was $20,000, and you gave $5,000 in QCDs, you would be required to withdraw another $15,000 to satisfy your 2021 RMD.
How do I make a QCD from my Charles Schwab IRA?
There are a few different ways to make QCDs from your Charles Schwab IRA. The first is by completing a Charles Schwab form. We can prepare the form for you at any point; however, this is often not the most convenient since you need to sign a new form each time you wish to make a charitable gift.
The most common way to make your QCDs is through a specific checkbook for your Charles Schwab IRA. You can receive a checkbook by signing a one-time form. After the form has been processed, a book of 50 checks will be mailed to your address. You can request additional checks at any point by letting your Shakespeare advisor know.
Here are a few things to keep in mind with your Schwab checkbook:
1) QCD checks aren’t technically considered distributions until they are received and cashed by the charity. Therefore, we recommend writing all checks by the end of November to ensure they are cashed before year-end.
2) Cash needs to be available in your Schwab IRA account for the check to clear. This is usually not an issue, but if you are making a large donation, it may be worth double checking there is sufficient cash in your account.
3) Your Schwab checkbook functions just as any other checkbook. That being said, if you accidentally write a check to pay your electric bill for the month, the check will clear and be counted as a taxable distribution from your IRA.
What about tax reporting?
You will receive a 1099-R tax form for the total amount of distributions taken from your Schwab IRA. It’s important to let your accountant/CPA know the amount you gifted to qualifying charities from your IRA.
Example: You distributed a total of $10,000 from your IRA in 2021. Of the $10,000 distributed, $5,000 was gifted via QCD to charities. Charles Schwab will send you a 1099-R for your 2021 taxes showing that you distributed at total of $10,000. Your accountant/CPA will need to manually note on your return that you gifted $5,000 to charities.
Since you may write multiple checks to charities throughout the year, we recommend keeping the carbon copies of the checks to be able to reconcile the total amount gifted. You can also contact your Shakespeare advisor for assistance, as we have access to a record of the checks that are cashed by each of the charities.
For alternative charitable gifting options, read the following blog post written by Brian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®:
If you have any questions regarding QCDs or your Schwab IRA checkbook, please reach out to your Shakespeare advisor at 262-814-1600.