Give smarter: QCDs and DAFs do NOT mix

By Josh Dukelow, gift planning officer

You probably already know the convenience of managing your charitable giving through a donor-advised fund (DAF). You may also know about the tax advantages of making charitable contributions directly from your individual retirement account (IRA), a technique available to donors older than 70 ½ using up to $100,000 called a qualified charitable distribution (QCD). 

Unfortunately, you cannot combine the two. Donors cannot send a QCD to their DAF. Why? 

An IRA distribution to a DAF is not considered “qualified” by the IRS. A QCD can go to other types of funds at the Community Foundation, like an endowed fund providing support to a named nonprofit or a fund that directs grants to nonprofits within an identified field or sector (housing, hunger, education, etc.). They just can’t go into a new or existing DAF. 

Many donors hope to use some or all of their QCD to meet their annual required minimum distribution (RMD). Since they have to take the money out, they’d like to avoid the tax bill by directing those funds to charity. Luckily, there’s still a way to reduce your tax liability and support your favorite causes. 

While you can’t send your QCD to your DAF, a gift to your DAF at the Community Foundation still qualifies for the charitable income tax deduction. So as long as you itemize on your income taxes and you can use the full deduction, your potential additional income tax liability will be the same whichever way you go – zero. 

Donors should talk to their financial and tax advisors about their specific situation, and advisors who want to know more about giving from an IRA can reach out to the team at the Community Foundation to discuss the rules governing IRAs, QCDs, RMDs and DAFs.