Info about QCDs and DAFs

Qualified Charitable Distributions (QCDs)

What is a QCD?
A QCD is a charitable gift made directly from an IRA to an eligible charity. If completed correctly, the amount is not included in the donor’s gross income for federal income tax purposes, and it may also count toward satisfying an IRA Required Minimum Distribution (RMD).

Who is eligible?

  • Traditional or Roth IRA owners (or beneficiaries after the owner’s death) who are age 70½ or older at the time of the distribution.
  • Generally not available from ongoing SEP/SIMPLE IRAs (i.e., if employer contributions were made for the year of the requested QCD).
  • QCDs from inherited IRAs held by entities (trusts/estates) are not permitted.

2026 limits (per person, aggregated across all IRAs):

  • Up to $111,000 total QCDs for tax year 2026.
  • Eligible IRA owners may make a one-time election to treat up to $55,000 (part of the $111,000 limit) paid directly from an IRA to certain split-interest entities (e.g., certain charitable gift annuities/charitable remainder annuity trusts) as a QCD, if specific requirements are met (client should consult their tax/legal advisors).

Key rules to qualify:

  • The payment must go directly from the IRA to the charity (not to the client first).
  • The donor cannot receive anything of value in return (e.g., event tickets/benefits).
  • Not all charities qualify; for example, QCDs cannot be made to donor-advised funds (including MS GIFT), supporting organizations, or private non-operating foundations. The client is responsible for confirming eligibility with their tax advisor/charity.

Tax reporting (high level):

  • Beginning in 2026, QCDs are reported on Form 1099-R using Code Y (Roth IRA distributions paid directly to charity are not reported with Code Y under current 1099-R instructions).
  • Clients should consult their tax advisor on reporting; generally, the distribution amount is included on Form 1040 line 4a, with the taxable amount reflected appropriately (and the QCD box checked).
Donor Advised Funds (DAFs)

A donor-advised fund (DAF) is a flexible tool to donate to nonprofit organizations. With a DAF, your client makes irrevocable, nonrefundable contributions of cash or securities to the DAF. Assets in the DAF can grow free of federal income tax, potentially increasing the value of the future grants suggested by you to the DAF. An investment firm typically manages assets held in the DAF, and the donor can suggest when and which qualified charities should receive grants.

Clients may receive a federal income tax deduction for a contribution made to a DAF in the year in which they make the contribution. However, actual distributions of the assets donated to the DAF can be deferred until donor is ready to suggest that a donation be made from the DAF to a specific charity.

Other potential benefits of DAFs include streamlined paperwork; the ability to donate more complex assets like real estate or art; and an opportunity to get family members involved in their giving strategy through tools like NextGen DAFs. Donors can also give anonymously, making grants in the name of the DAF, instead of their name.

Because the client does NOT own the assets held in the DAF, any assets held in a DAF are not subject to probate at the donor’s death, and the estate cannot use assets to pay the decedent’s debts or taxes. Donors can appoint a family member to succeed them as the DAF advisor to suggest nonprofit beneficiaries who would receive the donations from the DAF after the donor’s death.

To learn more, you can review this document provided by Morgan Stanley. 

Note: The information on QCDs and DAFs is shared for educational purposes only and does not constitute an endorsement of any organization or service provider. Please consult your professional advisors regarding your specific circumstances.