If you (and/or your spouse!) own one or more IRAs, you are in luck because the moment you pass the age of 70 1/2, you may be eligible to make distributions from those accounts directly to support your favorite charitable causes through a tool called a “Qualified Charitable Distribution.” If you’ve reached an age when you are required by the IRS to take distributions from your IRAs, these distributions can count toward those Required Minimum Distributions (RMDs), thereby avoiding the income tax hit on those dollars.
A Qualified Charitable Distribution permits you (and your spouse from your spouse’s own IRA or IRAs) to transfer up to $108,000 each year (2025 limit) from an IRA (or multiple IRAs) to a qualified charity. So. as a married couple, you and your spouse may be eligible to direct up to a total $216,000 per year (2025 limit) to charity from your IRAs and avoid significant income tax liability. Even better, the annual cap will be continue to be indexed for inflation going forward.
The IRS’s rules for QCDs are captured in Internal Revenue Code Section 408 and summarized on pages 14 and 15 in Publication 590-B in its FAQs publication.
Note that the IRS adopts a “last in first out” approach to QCDs, so if you are over 70 1/2 and have still been contributing to your IRA because of the increasing RMD age (in 2023, for example, the age increased from 72 to 73), be careful that you aren’t attempting to distribute recently-contributed assets to out of the IRA via a QCD.
Charities eligible to receive a client’s Qualified Charitable Distribution include designated funds, field-of-interest funds, and scholarship funds at the community foundation, but not donor-advised funds.
Diving deeper, the IRS specifically excludes donor-advised funds from eligibility for QCDs by referencing Section 4966(d)(2) of the Internal Revenue Code. Section 4966(d)2), in turn, defines donor-advised funds and specifically carves out, by functional description, designated funds, field-of-interest funds, and scholarship funds from the definition of donor-advised fund.
Designated funds, field-of-interest funds, and scholarship funds at your local community foundation are valuable tools to receive a QCD. Here’s how each of these funds works:
You can establish a field-of-interest fund at the community foundation for a charitable purpose of your choice. For example, a field-of-interest fund can be established to support research for rare diseases, to support organizations that assist homeless families in getting back on their feet, to enable art museums to acquire works that celebrate the region’s diversity, and so on. The knowledgeable team at your local community foundation, together with a selection committee depending on the terms of the fund, distributes grants from the field-of-interest fund according to the guidelines you’ve set to further your wishes. You can select the name of the fund, whether you wish to use your own name (e.g., Samuels Family Fund or Samuels Family Fund for the Arts), maintain anonymity (e.g., Maryville Fund for the Arts), or something else altogether (e.g., Bettering Our World Fund).
A designated fund at the community foundation is a good choice if you know you want to support a particular charity or charities for multiple years. This is useful as the distributions can be spread out over time to help with the charity or charities’ cash flow planning, enable you to benefit from a larger charitable tax deduction in the current year when your tax rates are high rather than spreading it out over future years when tax rate projections are lower, or both. You will specify the charities to receive distributions according to the guidelines you establish, and you can choose a name for the fund.
More and more donors are also setting up scholarship funds at their local community foundation to help students of all ages enter a college or trade after high school, as well as help older students complete their degrees after other scholarships have run out. As the donor, you get to help develop the criteria and then sit on a selection committee established by the community foundation that includes members of the community to avoid undue influence by the donor (which is not allowed by the IRS).
