One of the most tax-friendly provisions of an IRA is the ability for IRA owners who are at least age 70½ to donate up to $108,000 (2025 limit) directly to an eligible charity from their IRA. This is called a Qualified Charitable Distribution, or QCD. QCDs are excluded from your income. Unlike regular charitable contributions, which you may deduct if you itemize on your tax return, a QCD provides an automatic tax benefit and does not require itemization.

Important reminder: Although the required minimum distribution age has increased to 73, the QCD age threshold remains 70½. Married couples filing jointly may each contribute up to the annual limit from their own IRAs.

Until now, however, QCDs came with a thorny reporting headache. They were reported on IRS Form 1099-R as a regular distribution from an IRA, with no indication that the amount was a QCD. That meant your tax preparer had to explain to the IRS on your Form 1040 that the amount was tax-free because it was a QCD. This lack of clarity often led to confusion and mistakes.

Starting with 2025 reporting, this thorn has been removed. The IRS introduced a new Code Y to be used on Form 1099-R for QCD, which should make tracking and reporting easier for all parties.

The New Code Y for Qualified Charitable Distributions

Effective 2025, an IRA custodian may enter Code Y in Box 7 of Form 1099-R to show that the amount represents a QCD. Code Y is paired with another distribution code to provide more detail:

Code 7 for a QCD from a noninherited (normal distribution) IRA.Code 4 for a QCD from an inherited IRA.Code K for a QCD involving traditional IRA assets without a readily available fair market value. Colloquially referred to as “self-directed IRAs.”

This Code Y works perfectly if the entire distribution qualifies as a QCD. However, it becomes complicated when only part of a distribution is eligible to be treated as a QCD. In those cases, your tax preparer must carefully determine the eligible QCD amount. See “Not All Distributions to Charities Are QCDs” below.

The Myth About Roth IRAs and QCDs

Noticeably absent from the new IRS instructions is the option to pair Code Y with any of the Roth IRA distribution codes. This absence may reinforce the common myth that you cannot do a QCD from a Roth IRA. But as confirmed in IRS Notice 2007-7, QCDs can be made from Roth IRAs if the distribution is nonqualified. In such cases, the ordering rules would be reversed, allowing the earnings portion to be distributed as a QCD.

It is true that making a QCD from a Roth IRA is rarely a good tax-planning move because Roth IRA distributions eventually become tax-free. But the key point is that it is legally permissible.

Not All Distributions to Charities Are QCDs

You can do a QCD only if:

You are at least age 70½.The distribution is made directly from your IRA to an eligible charity.

See “How to Make a Tax-Free Donation From Your IRA” for more about the QCD rules.

Only the taxable portion of your IRA can be treated as a QCD. If part of your IRA balance is aftertax basis, that portion does not qualify.

Example:

Assume that you have a traditional IRA worth $100,000, made up of $70,000 pretax funds and $30,000 after-tax funds (basis). If you instruct your custodian to send the entire $100,000 to a charity as a QCD:

$70,000 qualifies as a QCD and is excluded from income.$30,000 cannot be treated as a QCD. Instead, your tax preparer must treat it as a regular charitable donation, just like writing a check from your personal bank account. You may be able to deduct the $30,000 on Schedule A if you itemize.

It is, therefore, important to confirm with your tax preparer how much of your IRA balance is eligible for a QCD before making the request.

Regular Charitable Contributions Versus QCDs

If you make a donation directly from your checking account or other non-IRA funds, that contribution may be deductible if you itemize, subject to limits.

By contrast, QCDs are automatically excluded from your income, which can also help reduce other taxes tied to your income level, such as Medicare premium surcharges.

Example:

Jane, aged 74, has a required minimum distribution of $20,000. Her IRA balance includes only pretax amounts. She directs her custodian to send $15,000 directly to a qualified charity using the QCD strategy. Because it is a QCD, the $15,000 is not included in her income. This keeps her adjusted gross income lower, which in turn reduces the chance that her Medicare premiums will increase. If Jane had instead taken the $20,000 as a distribution to herself and then donated $15,000, she would have had to report the full $20,000 as income and then claim a charitable deduction. That could have raised her income-related taxes or negatively affected certain benefits.

Your Responsibility in This Process

Your IRA custodian cannot determine how much of your distribution qualifies as a QCD. According to the IRS, they may rely on your “reasonable representations” to treat a distribution of up to the $108,000 2025 limit as a QCD. Some custodians provide a checkbox on the distribution request form for you to confirm that your distribution qualifies as a QCD.

Accordingly, while custodians typically applied QCD treatment by not withholding taxes on those amounts, they cannot verify whether your distribution meets all the requirements. That responsibility rests with you and your tax preparer.

Your preparer should review your history of IRA contributions and file Form 8606 to track and report any nondeductible contributions. They should also account for any after-tax rollovers from employer plans. This ensures that the QCD amount you request does not exceed your pretax balance in your IRAs.

What If Your Custodian Isn’t Ready for Code Y?

Although Code Y is effective starting with 2025 reporting, not all custodians may have updated their systems in time to roll it out for 2025. Taking this into consideration, the IRS, in its postrelease changes to Form 1099-R, provides that it is optional for an IRA custodian to use Code Y for 2025.

If your 2025 Form 1099-R for your QCD does not include Code Y, follow the previously established procedure, which is to inform your tax preparer how much of your distribution is a QCD, so that they can exclude it from income on your return with the proper explanation.

Code Y Simplifies Reporting, But Not Your Role

The new Code Y is a welcome improvement. It makes QCDs easier to identify on tax forms and reduces the risk of reporting errors. But it does not replace your responsibility to know how much of your IRA balance qualifies. Work with your tax advisor before making a QCD request and keep careful records of your contributions and basis (aftertax amounts).

When used properly, QCDs remain one of the most powerful charitable planning tools available to IRA owners. And with the new reporting rules, you can enjoy the benefits of giving with fewer headaches at tax time.

Denise Appleby is a freelance writer. The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.