BDQ #9: Can I Pay My Pledge With a QCD? How About With My DAF?

Two questions commonly asked by donors, one simple answer: “Yes.  Yes, you can!”

Of course, there’s a bit more to it.  Let’s take this opportunity to explore a little deeper.

Qualified Charitable Distribution (QCD)

Donors can direct a QCD contribution from their IRA to charity as long as it is for a charitable purpose. This includes making a QCD to pay a pledge. There are some limitations: the donor must be at least age 70½ when the QCD is made, there’s an annual limit on QCDs of $105,000 (in 2024, the limit is adjusted for inflation each year), and the distribution must be made directly from the IRA to the charity.

However, beware of a potential year-end pitfall. Donors whose IRA accounts include check writing privileges can make a QCD contribution by simply writing an IRA account check to a charity. However, the QCD date will be the date the charity deposits the check, not the date the donor writes or delivers the check. If your donor is counting on a QCD to offset required minimum distributions this year, be sure to allow extra time to make sure the IRA account check is accepted and deposited before year end.

Donor Advised Fund (DAF)

For many years, there was apprehension about using a DAF distribution to make pledge payments. The concern was based upon logical – though narrow – reasoning that goes like this: a pledge is a personal obligation, therefore making a pledge payment with a DAF relieves the donor of a personal obligation; however, public charity funds (like a DAF) cannot be used to provide personal benefit, therefore paying a pledge with a DAF is prohibited because it would use public charity funds to provide a personal benefit. The argument against pledge payments was bolstered by the fact that DAF distributions cannot be used to pay for membership fees, tuition, or charity events because those payments result in a personal benefit.

Out of an abundance of caution, fundraisers sometimes jumped through hoops, occasionally with absurd results. Should the donor cancel her pledge before recommending a grant from her DAF? What if the pledge isn’t a legally binding obligation? Perhaps a mere “intention” (or some other synonym for “pledge”) to make a future gift would work. Or maybe the DAF sponsor could be enticed to make a pledge recommended by the donor.

It is noteworthy that the IRS did not promote or advocate for this dogmatic interpretation. Even the IRS Continuing Professional Education (CPE) materials regarding DAFs were silent about pledge payments. Finally, in 2017, the IRS issued Notice 2017-73 clarifying that paying a personal pledge, even a legally binding pledge, with a DAF is permissible.

With its customary inverted syntax, the IRS said that payment of a personal pledge will not be treated as a more than incidental benefit for the donor. There are some limitations: the DAF sponsoring organization cannot make reference to the existence of the pledge when making the distribution (though references to the donor advisor’s name are permitted); the donor advisor cannot receive anything more than incidental benefit as a result of the distribution; and, of course, the donor advisor cannot not claim a charitable contribution deduction for the DAF distribution.

More recently, the IRS made no mention of pledge payments when it issued proposed regulations for DAFs in the fall of 2023, even though far reaching new restrictions limiting DAF payments to individuals were included.

In other words: donors can make a personal pledge to their favorite charity and then recommend a grant from their DAF in fulfillment of their pledge.