How a Qualified Charitable Distribution (QCD) Can Benefit You
If you’re age 70½ or older, there’s a smart way to make a meaningful gift while enjoying valuable tax benefits. The Qualified Charitable Distribution (QCD) is a unique tool that allows you to donate directly from your Individual Retirement Account (IRA) to a qualified charity – like the Butterfield Trail Village Foundation – in a way that may reduce your taxable income. It’s a win-win that directly aligns generosity with smart financial planning.
What is a QCD?
A Qualified Charitable Distribution is a direct transfer of up to $108,000 per year from your IRA to a charitable organization. The key is that the funds go directly from your IRA custodian to the charity, bypassing your personal bank account, to unlock significant tax advantages.
Why Consider a QCD?
Using a QCD to support a charity offers more than just the joy of giving. It can:
• Satisfy Your Required Minimum Distribution (RMD): If you’re 73 or older, the IRS requires you to withdraw a set amount from your IRA each year. A QCD can fulfill all or part of this RMD without increasing your taxable income.
• Reduce Your Taxable Income: Unlike regular IRA withdrawals, QCDs are excluded from your gross income, helping lower your overall tax liability.
• Lower Your Adjusted Gross Income (AGI): This can lead to a variety of other benefits, such as:
• Reduced taxation on Social Security benefits.
• Lower Medicare Part B and Part D premiums, which are based on income levels.
A Practical Example
Meet Jane, a 75-year-old with $50,000 in annual income (excluding her IRA). Her RMD is $10,000, and she wants to make a gift of $10,000 to support Butterfield’s Assisted Living expansion project.
Scenario 1 – Traditional Withdrawal & Donation:
• Jane withdraws $10,000, adds it to her income, and pays $1,200 in taxes (12% bracket).
• She donates $10,000 but must use $1,200 of her own funds to make up for the taxes she had to pay on the distribution to herself.
Scenario 2 – Qualified Charitable Distribution:
• Jane directs the custodian of her IRA to send $10,000 directly to the Butterfield Trail Village Foundation fund established with the Arkansas Community Foundation.
• Her RMD is satisfied, and her taxable income remains at $50,000.
• She pays $0 in additional taxes – saving $1,200 and maximizing the impact of her gift.
Why Support Butterfield Through a QCD?
Making a QCD to the Arkansas Community Foundation and directing it to the Butterfield Trail Village Foundation means your gift directly strengthens a mission close to home. It’s a unique opportunity to:
• Make a lasting difference: Help enhance resident programs, improve and maintain beautiful facilities, and support quality of life at Butterfield.
• Maximize your giving power: Your dollars go further, supporting the community without increasing your tax burden.
• Align with your legacy: A QCD is not just a financial transaction – it’s a statement about your values and your commitment to your neighbors.
How to Make a QCD Gift to the Butterfield Trail Village Foundation
1. Contact your IRA custodian. Let them know you’d like to make a Qualified Charitable Distribution to the Butterfield Trail Village Foundation fund that is established with the Arkansas Community Foundation. Your custodian will provide the necessary steps and forms.
2. Ensure a direct transfer. The funds must go straight from your IRA to the Arkansas Community Foundation with specific direction that the gift goes to the established BTV Foundation fund. If you receive the money in your bank account first, the tax benefits are lost.
3. Keep any documentation. Your custodian will provide important paperwork to confirm the distribution for your tax records.
Key Reminders
• Direct transfer is essential: Any detour through your own bank account counts as taxable income. Most fund managers can furnish IRA owners with checks payable to the charity of choice, and the owner can sign and send the check directly to the charity. If giving to the BTV Foundation, a QCD check must be made to the Arkansas Community Foundation with specific directions for the gift to go to the established BTV Foundation fund. As long as the charity receives and cashes the check within the same tax year, the distribution typically still qualifies as a QCD.
• No double-dipping: You can’t claim a charitable deduction for the same QCD amount on your tax return – but the exclusion from income is often the better deal in the end.
• An annual limit applies: For 2025, the maximum amount you can contribute through QCDs is $108,000 per year, per individual. This is adjusted annually for inflation.
• Talk to a professional: Every financial situation is unique. Always consult your advisor to confirm a QCD fits your particular goals and circumstances, as well as to confirm the maximum allowable distribution amount according to the current year’s IRS guidelines.
Generosity Powers Butterfield’s Future
The Butterfield Trail Village Foundation is deeply grateful for the support of our community. Donors who choose to give through a QCD are making a lasting difference – strengthening the Village’s services, enriching lives and helping us grow into the future. Together, we can continue building a vibrant, caring, sustainable environment for all who call Butterfield home.
