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As someone who has never done a QCD, this article by CPA Mike Piper (www.OpenSocialSecurity.com, Bogleheads speaker, etc.) was very helpful. Anyone with experience on making QCDs, IRS inquiries about QCDs, etc., have any wisdom or personal experience to add to this?
I have been doing QCD’s since 2019. Things can be a little quirky, let me explain. Vanguard has the entire process available on its website. In the first few years, they sent me the QCD actual checks, then I forwarded them to the Charity. In Fort Worth, TX I had to learn that a form is necessary for my Church to receive QCD’s. For my Church in MO I just give them into the office. So there are some variations. Also, in 2023 I found that some QCD’s are sent directly to the charity. If I receive a check I always PDF it, so I have evidence of the donation, if not I PDF the letter from Vanguard. In addition, I received letters from the charities, and from my church documenting the donations. It is convenient once you learn how it all works from the Vanguard website to the charity. When you do your taxes there is an entry for QCD on the worksheet and then the subtracts from the total RMD. Lots involved for these QCD’s, but well worth saving the tax.
We use a donor advised fund with Vanguard for part of our charitable giving. We will begin taking RMDs in two years, and I understand that we cannot transfer a QCD to a donor advised fund, but instead must donate directly to a charity. Does anyone know whether there has been a proposal to change this law?
As a non-profit executive, the organizations I worked for were grateful recipients of QCDs. And I would include a paragraph reminding donors of the opportunity in our fundraising letters. I have two suggestions:
1)Please make these gifts early in the year. The week between Christmas and New Year’s is a busy one for non-profits!
2)Alert the charity that the gift is coming. Brokerages do not include the names of donors—the stock just shows up in our brokerage account with no attribution. We once got a large gift from a QCD and despite repeatedly asking the brokerage, never learned who it was from. We had a small donor pool—I came to the belief that it might have been in error—that the DTC number was wrong and came to us instead of another worthy organization.
My RMD age is a couple of years away and you can bet the 10% of my gross income (now from SS and investments) that I’ve always given to charity will be via a QCD.
Dan, thanks for the reference to the article. Mike Piper’s articles are always very instructive. I’m still a few years from eligibility for QCDs but I’m glad to learn some of the tricks.
Rick, your welcome. I was glad to be able to learn from Mike Piper on this topic as well.
Do the QCD early in the year in case you need months to chase after the organization for a receipt. Keep copies of everything. Checks before they are mailed out, envelopes showing stamps, checks after they’ve been deposited, etc. If the IRS comes snooping 3-4 years later, you’ll have little time to respond to their inquiry.
I use the do-it-yourself-checkbook method described below.
As 1PF points out below, if the brokerage company sends you a check made out to the charity this is unnecessary. I take my QCDs at the same time as my RMD, in late October. I want tax free gains for as long as possible. I have never seen a need for check writing privileges on my IRA.
You still need to get a receipt from the organization and that can be the hardest part of the process.
I have never worried about that, but the charities I support have always provided the relevant letter promptly. Since the check is written, by Vanguard, to the charity, it’s hard to see what the IRS could complain about, in the exceedingly remote possibility that I was audited. If they didn’t audit me last year, when my medical deduction was over $200,000, I doubt they will do so in the future.
I will scan the checks in the future, although I have not done so in the past.
Vanguard also keeps a list of the QCDs on their site along with the RMDs, although they can sometimes be a little difficult for me to find.
We have the checks made out to the charities, but have them sent to us so that we can photocopy them before distributing them. A couple of years ago, a large QCD check was lost in the mail. Having the copy made it easy to verify that the charity hadn’t received the contribution and the check had not been cashed. We easily obtained a replacement.
Thanks so much for the link and comments. For this year, I’ll itemize but the various articles I’ve read here helped me decide to make QCDs from my IRA in 2025. I think it will simplify getting things ready for my tax person. And I will be sure to remind him to report them on the right form.
Linda, your welcome. And terrific that you’ll start making QCDs in 2025!
Dan, as a potential first time QCD-er in 2025, I appreciate the link to Mike Piper’s article. Thanks.
Your welcome, Andrew!
We started doing QCDs this year. Schwab offers a checking feature for IRA accounts and we received a book of checks to use to withdraw from the IRA. So far we have only used the checks for QCD donations but we could use them for any purpose. The cashed checks show up as IRA account transactions and we download and save the cashed check images as they arrive. As the donation receipt letters (or emails) arrive a PDF copy of these is also saved. All of the donations are to verified 501(c)3’s. Most of the donation receipts meet the full IRS-defined requirements for QCD documentation but a few do not have the “no goods or services were received” wording. We are wondering if the donations without the magic wording would be disallowed if we were audited. Anyone have experience with this?
I include the following IRS regulation in the organization letter sent accompanying the QCD. Only on one occasion did I need to threaten an organization which did not comply…and they still did not so I’ve cut them off and spread the word. They continue to uselessly dun me yearly.
Ҥ170(f)(8)(B)(ii)
(8) Substantiation requirement for certain contributions.
(A) General rule. No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).
(B) Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
The IRS requires a written receipt for the donation be given to the donor.”
This CPA firm says the IRS has disallowed contributions without the requisite language, but doesn’t cite any authority for that — or the possibility of obtaining such a statement upon specific request from the charity if you are audited on that basis. Good to know Schwab’s check writing feature.
I have been doing QCDs for several years. Previously I handled them over the phone with Vanguard, but this year I did it successfully on their website. Vanguard has always sent the checks to me, made out to the charity. I get the usual acknowledgement from the charity and make sure my tax accountant remembers to report the QCDs on the relevant form.
I did just get a phone call from the woman in charge of the benevolent fund at my CCRC, who wanted to confirm that the check I sent was a distribution. Apparently she will “acknowledge” it differently.
Thank you, Kathy.
I also read the referenced excellent article after seeing the topic in Mike Piper’s newsletter this morning. A good year end planning topic.
I would add that there is a potential gotcha when you are over age 70 1/2 and if you are still contributing to a traditional IRA. In summary, any amount you are sending directly to a charity from your IRA cannot be an excluded from taxable income as a qualified charitable distribution (QCD) if and while any post age 70 1/2 distribution amounts are exceeded by post age 70 1/2 traditional IRA contributions.
IRS Pub 590-B for 2024 has not been released yet in draft or final form but you can see the 2023 version at the below link and use the illustrated 2023 QCD Adjustment Worksheet on page 14 as a guide to determine if this provision applies to you.
https://www.irs.gov/pub/irs-pdf/p590b.pdf
Thanks, William. I’ll be doing Roth conversions to reduce qualified account balances, so no need for me to worry about contributing to a traditional IRA at that point.
I have done QCDs for three years and no problem. I send checks as small as $200 and as large as several thousand to different charities. The checks are made out to charity, but sent to me for delivery or mailing. All on line of course via my Fidelity account.
No issues so far, but you need to be sure you check the right box on your tax return to let IRS know what part of RMD is QCD.
Also, keep track of acknowledgement from the charity and be sure to send them in time so the checks can be cashed by year end or you technically can’t count them as QCD. How you would know that have been cashed I have no idea.
AI searches and Ed Slott’s IRA help site all say this:
If you have check-writing privileges on your IRA at (for example) Fidelity, then when you write an IRA check made out to the charity and send it to the charity as a QCD, the contribution counts as a QCD on the date when the charity cashes the check. You’d know the date when the check has been cashed by seeing that transaction appear in your report of IRA transactions. So yes, the check you wrote and sent needs to be cashed by year-end to count as a QCD for that year.
In contrast, if Fidelity generates the check made out to the charity and sends it to the charity (or to you and you send it to the charity), the QCD date is the date that Fidelity takes the funds out of your IRA to issue the check.
If the last paragraph is correct, and I consider Ed Slott the god of IRAs, then having one’s mutual fund cut the check seems to resolve the QCD date conundrum. Seems absurd the Government would use the date cashed by the charity rather than say the postmark date if the check is written by the donor, but hey it’s the Feds.
With the check-writing privilege, the funds leave the donor’s account — not at the postmark date but — when the check is finally cashed by the charity. I think “funds leave the donor’s account” is what matters to the IRS.