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DAF Before QCD? A Charitable Giving Strategies Q&A with Dr. James

Russell James, J.D., Ph.D., CFP® November 29, 2022

charitable giving strategies giving Tuesday

When it comes to charitable giving, cash is not king. If you have a client who’s making cash donations, and they’re age 70 1/2, it’s smarter to make those gifts directly out of the IRA in what’s called a qualified charitable distribution (QCD). This sends money directly from the IRA or IRA rollover to a charity. It can offset their required minimum distributions (RMDs) that kick in when they hit 72, though the QCD isn’t limited to the RMD amount.

Below I’ve answered common questions from financial advisors on coordinating a client’s RMD with a QCD to make the most of tax benefits, whether clients should first fund a donor-advised fund (DAF) before a QCD, as well as some general guidelines to follow.

Is the QCD-eligible age still 70 1/2 even though the age when RMDs start was bumped to 72?

Yes. The QCD eligibility age is still 70 1/2. There is a mismatch there. The SECURE Act of 2019 raised the RMD age to 72, and the QCD age is still 70 1/2. That means QCDs can be used in charitable giving strategies before RMDs begin. More on that below.

How much can a client who is age 70 1/2 transfer as a qualified charitable distribution?

Donors 70 1/2 or older can give up to $100,000 annually as a tax-free QCD from their traditional IRA. Here’s a pop quiz: Does that amount change if the RMD is $25,000 or $200,000? If you answered no, you’re correct. The limit is $100,000 a year, regardless of the size of their RMDs.

What blind spots do we need to watch for in coordinating RMDs and QCDs?

There’s a little bit of warning in that you do have to convert other non-IRA funds into an IRA rollover before making a QCD. When that happens, there’s a trap that sometimes clients get caught in.

You need to convert the funds in advance because any RMD due in the year of conversion will have to be paid out.

You actually have to pay it out before the conversion. It’s part of the requirement of converting, say, a 401(k) into an IRA rollover: You first have to pay out the 401(k)’s RMD.

To fix that, all you have to do is make sure that you do that conversion prior to the first year of RMDs. That’s why it’s important to start talking to clients when they’re approaching age 70 1/2. Don’t wait until age 72.

Should a donor-advised fund (DAF) strategy be used before a QCD?

The QCD is generally more tax-advantaged if you are giving cash. It’s pretax gifting, so both adjusted gross income (AGI) and the tax burden stays low.

Are clients able to make a QCD to a donor-advised fund?

No. Although they can make donations to some DAF-y things. Section 408 of the Internal Revenue Code says the QCD must go to a public charity. However, that includes scholarship funds, even when the donor sits on the recipient selection committee.

Can you make a QCD from an inherited IRA?

If the beneficiary who inherits an IRA is 70 1/2, they can use the QCD.

Can you take a deduction for traditional IRA contributions and then donate those contributions as a QCD?

You cannot stuff money into your IRA, take a deduction for that, and then siphon money out of that same IRA and send it to a charity as a QCD. That essentially would amount to an above-the-line charitable deduction that reduces a taxpayer’s AGI.

However, if you’ve got a married couple, you can do something similar to that. Here’s an example. One spouse is contributing $7,000 in earned income to their IRA and taking the deduction, while the other spouse is using their $7,000 RMD for a qualified charitable contribution. The combined levels of the two IRAs don’t change at all, but you essentially end up with an above-the-line deduction for that charitable gift. It’s a good idea to consult a qualified tax advisor to calculate the effect of deductible IRA contributions on QCDs and make sure they aren’t missed on the tax return.

See the Top 10 Giving Strategies

For even more tax-efficient giving strategies, watch the webinar I recently presented, Top 10 Charitable Planning Strategies for Financial Advisors: Helping Your Clients and Your Business with Charitable Planning.




The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

The views and opinions expressed by this blog post guest are solely those of the guest and do not necessarily reflect the opinions of eMoney Advisor, LLC. eMoney Advisor is not responsible for the content, views or opinions presented by our guest, nor may eMoney Advisor be held liable for any actions taken by you based on the content, views or opinions of the guest.

About the Author

Russell James, J.D., Ph.D., CFP® is a professor in the Department of Personal Financial Planning at Texas Tech University. He holds the CH Foundation Chair in Personal Financial Planning and directs the on-campus and online graduate program in Charitable Financial Planning. Additionally, he is an adjunct professor at the Texas Tech University School of Law where he teaches Charitable Gift Planning. Dr. James has over 150 publications in academic journals, conference proceedings, and books. These predominantly focus on statistical analysis and experimental research related to gifts, estates, and property. He has been quoted on charitable and financial issues in a variety of news sources including The New York Times, The Wall Street Journal, CNN, MSNBC, CNBC, ABC News, U.S. News & World Report, USA Today, the Associated Press, Bloomberg News and The Chronicle of Philanthropy.

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.