New 1099-R codes for Qualified Charitable Distribution (QCD) reporting ensure seamless tax reporting for your clients' retirement accounts.
Understanding What’s Changing With 1099-R Codes for QCDs
The Internal Revenue Service (IRS) has rolled out an update that changes how Qualified Charitable Distributions (QCDs) from IRAs are reported. Starting with distributions processed on or after January 1, 2025, Code Y will be added in Box 7 of IRS Form 1099-R. In simple terms, this gives QCDs their own clear label, making it easier to see when a distribution went directly to a qualified charity.
In the past, QCDs were reported under broader codes like code 7 (normal distribution) or code 4 (death distribution). It was then up to IRA owners or beneficiaries to make sure the QCD exclusion was handled correctly on their tax returns. By moving to a dedicated code, the IRS is aiming for cleaner reporting, better compliance, and fewer questions as more retirement investors use QCDs as part of their tax-efficient charitable giving strategies.
Key Differences: How 1099-R Reporting for QCDs Is Changing
Previously, the absence of a specific QCD code on Form 1099-R often created uncertainty. QCD-eligible distributions looked like any other payout, with no clear indicator that the funds were sent to a qualified charity. That meant account holders and their advisors had to do more work on the back end to document the exclusion correctly, increasing the likelihood of mistakes or follow-up from the IRS.
With the new approach, Code Y will be added alongside the existing codes 7 (normal distribution) and 4 (death distribution) to show that the distribution qualifies as a QCD. For example, Code Y7 reflects a normal distribution that qualifies as a QCD, while Code Y4 signals a death distribution that qualifies as a QCD. This added detail gives the IRS immediate visibility and makes tax reporting simpler for both advisors and clients.
Practical Tips for Accurate QCD Reporting in IRAs
To stay compliant and get the full benefit of QCDs, advisors and clients should keep a few practices in mind. Distributions must go directly from the IRA to a qualified charitable organization, and checks should be made payable to the charity, not the IRA owner. If funds are routed indirectly or checks are made out to the individual, the distribution will not qualify as a QCD and may create unwanted tax consequences. It’s also important to verify that the charity meets IRS 501(c)(3) criteria for the distribution to be reported as a QCD.
In 2025, the annual QCD limit is $108,000 per individual and the IRA owner must be 70 ½ or older at the time of the distribution. Advisors should encourage clients to start QCD requests well before year-end so everything can be processed by December 31. Staying in close contact with custodians about the new Code Y requirements will help ensure accurate reporting and reduce last-minute issues.
Putting Custodial Expertise to Work in a Changing Regulatory Landscape
As reporting and regulatory standards evolve, experienced IRA custodians play a critical role in supporting advisors, investors, and compliance teams. Custodians like CNB Custody offer deep familiarity with IRS rules, strong reporting systems, and responsive client support to help manage both alternative and traditional IRA assets, including QCDs.
By working with a knowledgeable custodian, advisors can move through regulatory changes with greater ease, use advanced reporting tools, and help keep client accounts aligned with the latest IRS guidance. The rollout of Code Y on Form 1099-R is a clear reminder that ongoing education, operational flexibility, and attention to detail are essential in today’s retirement account environment.
