A Qualified Charitable Distribution (QCD) can be a powerful way to combine charitable giving with smart tax planning. If you’re already taking Required Minimum Distributions (RMDs) or nearing that stage, a QCD allows you to support the causes you care about directly from your IRA while potentially reducing your taxable income. Before making a donation, it’s important to understand how QCDs work, who can make them, and the rules that make them such a valuable retirement planning tool.
If you’re curious how a Qualified Charitable Distribution really works, here’s what makes them such a unique and valuable option for retirees:
A Qualified Charitable Distribution…
…Is an opportunity to give to the charities of your choice.
You can decide to give to organizations that align with your values. You can check them out on Charity Navigator to evaluate their programs.
…Is given from your Traditional IRA accounts.
Only IRA accounts may be used (except Roths) – not 401(k) or 403(b) accounts.
…Is handled by a custodian that cuts a check as you direct.
Generally, the check is mailed to the charity. Be sure to indicate amount, charity, and address. You can have checks mailed to you if you prefer to deliver the charitable distribution personally.
…Has a maximum of $108,000 per year to contribute to charities.
You can use your QCD to meet your Required Minimum Distribution. The limit noted above is applicable for the year 2025 and is adjusted annually for inflation.
What to Know About Qualified Charitable Distributions…
…You can do a QCD if you are an IRA owner or beneficiary.
You must be 70-1/2 years old. While the Secure Act 2.0 raised the distribution age to 73, the age for QCDs remains at 70-1/2.
…You cannot receive anything in return for the donations.
No free tickets, tote bags, or mugs are allowed. Gifts to donor advised funds or private foundations do not qualify as QCDs.
Making the Most of a QCD Strategy
The big advantage to making Qualified Charitable Donations from your RMD is that it deducts the QCD from your Adjusted Gross Income. This is important for managing your taxable income and your IRMAA premium or Medicare premium. By lowering your reported income, a QCD can also help you stay within a lower tax bracket or avoid triggering additional taxes on your Social Security benefits – an often-overlooked benefit of charitable giving through your IRA.
2025 is the first year IRS has introduced a new Code Y on Form 1099-R for IRA custodians to indicate a QCD. This new reporting code should make it easier to identify your Qualified Charitable Distributions during tax season and ensure they receive proper treatment when you or your tax preparer file your return.
If you’re interested in using your IRA to give more strategically while managing your retirement income, now is a great time to explore QCDs. Talk with your financial advisor or Peggy L Farnworth, CPA, CFP, CSA at Boise Retirement Coach to learn how this strategy could fit into your overall retirement plan – and help you make a meaningful impact on the causes you care about most.
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