First, what is QCD:
A qualified charitable distribution (QCD) is a distribution from a traditional IRA directly to a charitable organization (i.e., the check is made out directly to the organization rather than to you). Unlike most distributions from a traditional IRA, QCDs are not taxable as income. And they can be used to satisfy required minimum distributions (RMDs) for a given year. QCDs are limited to $100,000/year (per spouse, if you’re married).
For somebody age 70.5 or older:
- Donating appreciated taxable assets with a holding period longer than one year or donating via QCDs, depending on circumstances,
- Donating via whichever of the two options above was less preferable,
- Donating taxable account cash (e.g., checking/savings balances),
- Donating appreciated taxable assets that you have held for one year or less,
- Donating Roth IRA dollars, and finally
- Donating taxable assets where the current market value is less than your basis. (This one is really bad because your deduction is limited to the market value, and you don’t get to claim a loss for the decline in value. Better to sell the asset, claim the capital loss, then donate the resulting cash.)
For somebody not yet age 70.5 (and therefore ineligible for QCDs):
- Donating appreciated taxable assets with a holding period longer than one year,
- Donating taxable account cash (e.g., checking/savings balances),
- Donating appreciated taxable assets that you have held for one year or less,
- Donating Roth IRA or traditional IRA dollars, and finally
- Donating taxable assets where the current market value is less than your basis.
But as always, tax planning is case-by-case. A household could have circumstances such that the above would need to be rearranged in some way.