Qualified Charitable Distributions: A Smart Giving Strategy for IRA Owners

If you’re over 70 ½ and have a traditional IRA, there’s a tax-savvy way to support the causes you care about: Qualified Charitable Distributions (QCDs). This strategy allows you to donate directly from your IRA to charity—potentially reducing your taxable income and satisfying your Required Minimum Distribution (RMD) at the same time, if you are subject to RMD

Here’s a breakdown of how QCDs work, who can take advantage of them, and when it makes sense to act.

A QCD is a direct transfer of funds from your IRA custodian to a qualified charity. Up to $100,000 per year (per individual) can be distributed this way, and it counts toward your RMD if you’re 73 or older. Unlike regular IRA withdrawals, QCDs are excluded from your taxable income. That’s a big deal—especially for retirees who want to limit their income tax liability or avoid creeping into a higher Medicare premium bracket.

You must be at least 70 ½ years old at the time of the distribution. The IRA must be a traditional IRA—Roth IRAs don’t typically benefit from QCDs in the same way because they’re not subject to RMDs. Also, the distribution must go directly to the charity—if it hits your bank account first, it won’t qualify.

Eligible charities include most 501(c)(3) organizations, but not donor-advised funds, private foundations, or supporting organizations. It’s important to confirm the charity qualifies before initiating the transfer.

QCDs can be especially useful if:

• You don’t itemize deductions. Most retirees take the standard deduction, meaning charitable contributions offer no tax benefit. A QCD still lowers your taxable income—even if you don’t itemize.
• You want to reduce your RMD impact. RMDs increase your taxable income, which can affect Medicare premiums, taxation of Social Security benefits, and put you in the phase out limit for the new Senior Bonus Deduction A QCD lets you fulfill your RMD without increasing your adjusted gross income.
• You’re philanthropically inclined. If you already give to charity, a QCD is often a more tax-efficient way to give.

The best time to consider a QCD is before or around when you’re required to take your RMD. For many, that’s at age 73. However, you can start at 70½ to get ahead of the game. It’s wise to start the QCD process early in the year—custodians can be slow, and the transfer must be completed by December 31 to count for that tax year.

QCDs are not retroactive, and partial distributions don’t count unless fully processed. Also, if you’ve already taken your full RMD for the year, a subsequent QCD won’t undo the tax liability on that withdrawal. Timing matters.

Even though QCDs don’t show up as non-taxable on your 1099-R, you’ll need to report them correctly on your tax return. Make sure you get an acknowledgment letter from the charity, and keep records. Your tax preparer needs to know it was a QCD—not a regular distribution.

QCDs are one of the most overlooked tools for charitably inclined retirees. Used properly, they can provide significant tax savings while supporting the causes you care about most. If you’re approaching RMD age—or already taking them—it’s worth reviewing whether this strategy makes sense as part of your annual giving plan.

As always, coordinate with your financial advisor and tax professional to ensure you meet all the requirements and maximize the benefit.