Can You Do a QCD From an Inherited IRA?

Qualified Charitable Distributions (QCDs) offer a tax-efficient way to donate to charity directly from an Individual Retirement Account (IRA). While typically associated with traditional IRAs, questions often arise regarding their applicability to inherited IRAs. Understanding whether QCDs can be executed from inherited IRAs is key for beneficiaries seeking to optimize charitable giving while managing tax implications.

Requirements for an Inherited IRA QCD

To execute a QCD from an inherited IRA, beneficiaries must meet specific IRS requirements. As of 2024, the beneficiary must be at least 70½ years old at the time of the distribution. This rule mirrors the age requirement for traditional IRAs. QCDs are permitted from inherited traditional IRAs but not from inherited Roth IRAs, as Roth IRAs are funded with after-tax dollars and their distributions are tax-free. Beneficiaries should confirm the type of inherited IRA to determine eligibility.

The QCD must be made directly to a qualified 501(c)(3) charitable organization. Direct transfer is necessary to preserve the tax-free status of the distribution. Verifying the charity’s eligibility under IRS guidelines is critical, as not all organizations qualify.

Distribution Amount Rules

QCDs from inherited IRAs must follow the annual limits set by the IRS. In 2024, the maximum allowable QCD amount is $100,000 per individual per year. This limit applies to the total QCDs made from all IRAs owned by the individual, including inherited IRAs, and is per taxpayer, not per account.

Beneficiaries can use QCDs to satisfy part or all of the Required Minimum Distributions (RMDs) for inherited traditional IRAs. This can reduce taxable income, as QCD amounts are excluded from gross income. The timing of the QCD is also critical; the transfer to the charity must be completed by December 31 of the tax year to qualify. Delays could result in the distribution being taxable, negating the intended benefits. Beneficiaries should work with IRA custodians and charities to ensure timely processing.

Steps to Complete a QCD

Executing a QCD from an inherited IRA requires a few key steps. Start by selecting a qualified charity, verified as a 501(c)(3) entity using the IRS’s Exempt Organizations Select Check tool.

Next, contact the IRA custodian to arrange the direct transfer. Submit a formal request specifying the distribution amount and charity information. The distribution must be made directly to the charity to qualify as a QCD. Clear communication with the custodian is essential to avoid errors that could disqualify the transaction.

Keep detailed records of the transaction, including the distribution request, transfer confirmation, and acknowledgment from the charity. These records are essential for tax reporting and in case of an IRS audit.

Tax Documentation

Tax reporting for a QCD from an inherited IRA requires attention to detail. The IRA custodian will issue Form 1099-R, which reports the distribution amount but does not differentiate QCDs from other distributions. Beneficiaries must accurately report the QCD on their tax return.

Report the total IRA distributions on line 4a of Form 1040, with the taxable amount (typically zero for a QCD) on line 4b. Write “QCD” next to line 4b to clarify the distribution. Retain the acknowledgment letter from the charity, which must confirm receipt of the distribution and state that no goods or services were provided in return. This letter fulfills IRS substantiation requirements under Internal Revenue Code Section 170(f)(8).