QCD with IRA Checking Account – Easy, but Beware

For taxpayers who engage in philanthropic activities and are subject to traditional IRA-required minimum distributions (RMDs), the qualified charitable distribution (QCD) is a valuable planning strategy. It allows you to avoid taxable income on the RMD, meaning:

Lower adjusted gross income (AGI)
Lower taxable Social Security
Lower estimated tax payments if AGI is less than $150,000
Lower income-related monthly adjustment amount (IRMAA), which can increase the fee that’s added to Medicare Part B and Part D premiums for individuals with higher income.
Lower taxable income

The fact that the tax code needs a direct transfer of the QCD from the IRA to the charity complicates the process. And those complications make some taxpayers shy away from the QCD, which can be highly beneficial. Here is how you can simplify the process: Use a traditional IRA checking account to make QCDs.

Not all IRAs offer this option. Furthermore, you cannot use a checking account when using what is often referred to as the “checkbook IRA.” Let us clarify.

There are two important distinctions to make regarding checkbooks and QCDs:

Check written from an IRA. According to IRS Notice 2007-7, an IRA check written to a qualified charity by the IRA owner from the traditional IRA account can be considered a QCD issued by the trustee. Therefore, you can write a check from such an account to a qualified charity and characterize it as a QCD.
Self-directed IRA LLC checkbook. When it comes to using a self-directed IRA LLC checkbook, the situation is different. QCDs must be made directly by the IRA trustee to the charity. Since the LLC is a separate entity from the IRA itself, writing a check from the LLC does not qualify as a direct transfer from the IRA.

So, the first step in using an IRA check to make a QCD is to set up a checking account for a regular IRA, not a self-directed IRA LLC. Moreover, there is a massive difference in the complications of setting up a self-directed IRA LLC and a simple IRA checking account with a brokerage firm like Schwab or Fidelity.

A second complication is making sure that the charity (1) receives your check and (2) cashes it before December 31. You both need to have a QCD for the year. There is no such complication with a transfer from a trustee to a charity.

The third complication is making sure that your QCD qualifies as a charitable contribution in general; this means you

Paid the money to a Section 501(c)(3) organizations like your church, a school, the Red Cross, or some other charity;
Received no benefit from the organization from your contribution, like a meal at a charity foundation; and
Have a receipt from the charity for any contribution of $250 or more, acknowledging your donation and stating that you received no benefits in return.

BergerCPAFirst, with over 30+ years of experience, offers comprehensive tax preparation services for individuals and businesses nationwide. Our commitment is to provide personalized attention while ensuring compliance and maximizing tax benefits. If you have any questions or would like to schedule a consultation, please call (201) 587-9200 or send us an inquiry.