Qualified Charitable Distributions (QCDs): How to Donate from Your IRA Tax-Free
- Holzberg Wealth Management
- May 14
- 12 min read
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When you have spent a lifetime building your nest egg, it becomes increasingly important to provide for yourself in retirement and make purposeful decisions with your money. For those of us who are charitably inclined and want to make a meaningful impact, how do we do that in a financially savvy way while being mindful of the fact that we have competing priorities? Enter Qualified Charitable Distributions (QCDs).
QCDs are a tax-smart way to give to charity and utilize tax-deferred retirement assets. They are a powerful financial strategy, yet are underutilized by philanthropic retirees. Imagine turning your required IRA withdrawals from a tax burden into a force for good, all while saving you money in taxes. Whether you are already giving to charity or seeking the most tax-efficient retirement strategies, QCDs are an essential tool to optimize both your tax situation and charitable impact.
What Are Qualified Charitable Distributions?
QCDs allow individuals age 70½ or older to donate directly from their Individual Retirement Account (IRA) to a qualified charitable organization. Unlike regular withdrawals from retirement accounts that typically count as taxable income, QCDs allow you to exclude the distributed amount from your taxable income.
QCDs were introduced as part of the Pension Protection Act of 2006, which aimed to encourage charitable giving and provide tax advantages for retirees. Initially, QCDs were subject to annual renewal by Congress, creating uncertainty for taxpayers and nonprofits alike. However, QCDs were made a permanent part of the tax code when Congress passed the Protecting Americans from Tax Hikes Act of 2015.
QCDs are particularly valuable because they can satisfy Required Minimum Distributions (RMDs) without the tax consequences. Once you reach RMD age (check out our post Important Age Milestones to Consider for Your Financial Plan to find yours), the IRS requires you to withdraw a certain amount from your pre-tax retirement account(s) every year. These RMDs are typically taxable as ordinary income. QCDs allow you to meet this requirement without the associated tax consequences.
How Do QCDs Work?
A QCD is a direct transfer from your traditional IRA to a qualified charity, bypassing you and avoiding taxation. Here is how the process works:
Choose a qualified 501(c)(3 organization. Not all charities qualify. Donor-advised funds (DAFs), private foundations, and supporting organizations are not eligible recipients of QCDs. In addition, organizations that provide goods or services in exchange for your donation(s) are not eligible for QCDs. You can also make a one-time donation to a Charitable Remainder Unitrust (CRUT), Charitable Remainder Trust (CRT), or Charitable Gift Annuity (CGA) – more on this below.
Request a distribution through your IRA custodian. To count as a QCD, the money must be transferred directly from your IRA provider to the charitable organization. You cannot withdraw the funds and then write a check yourself – doing so will make the distribution fully taxable.
You can give up to $108,000 per year, per person (indexed for inflation). The annual QCD limit for 2025 is $108,000 per person. Married couples with IRAs can donate up to $216,000 combined, assuming each spouse meets the eligibility requirements.
Your QCD can count toward your Required Minimum Distribution (RMD). If you are required to take an RMD, a QCD can satisfy part or all of it without increasing your taxable income.
The QCD amount is excluded from your taxable income. Unlike regular IRA withdrawals, QCDs do not increase your Adjusted Gross Income (AGI). This can have downstream benefits, such as keeping your Medicare premiums lower or reducing the taxability of your Social Security benefits.
You will still receive a Form 1099-R, but you must report it correctly. Your QCD will not be reported separately on Form 1099-R, so it is crucial to work with your tax preparer to make sure the donation is reported correctly. The charity should also provide you with a written acknowledgment for your records.
Why Use a QCD?
If you are charitably inclined and have a traditional IRA, QCDs offer unique tax advantages that make them one of the most efficient ways to give in retirement. Here is why they are worth considering:
Reduce Your Taxable Income
One of the biggest advantages of a QCD is that the amount donated is excluded from your taxable income. This is different from a standard charitable deduction, which only helps if you itemize your tax return. With a QCD, you get the tax break whether you itemize or take the standard deduction, making it a powerful tool for more taxpayers.
Satisfy Your Required Minimum Distribution (RMD)
Once you hit RMD age, the IRS requires you to start taking RMDs from your traditional IRA, and those withdrawals are taxable. A QCD can be used to meet part or all of your RMD for the year without increasing your taxable income, making it a great way to meet the requirement and give back at the same time.
Avoid Pushing Yourself into a Higher Tax Bracket
Adding RMD income on top of Social Security or other retirement income can sometimes push retirees into a higher marginal tax bracket. By using a QCD, you keep your Adjusted Gross Income (AGI) lower, which may help:
Reduce Medicare premiums (by lowering your IRMAA bracket)
Minimize taxes on Social Security benefits
Preserve deductions and credits that phase out at higher income levels
4. Support Causes You Care About More Efficiently
You may already give to charity, but QCDs allow you to stretch your giving dollars further by reducing your tax bill at the same time. Instead of donating cash from your checking account (after paying tax on IRA withdrawals), you are giving pre-tax dollars directly from your IRA. The charity gets the full amount, and you avoid recognizing the income altogether.
No Need to Itemize
Since the standard deduction is already relatively high, many retirees do not itemize their deductions. That makes it harder to receive a tax benefit for charitable giving. A QCD bypasses this issue entirely by allowing you to give directly from your IRA and still receive a tax benefit.
Legacy and Intentionality
QCDs are not just a tax tool but a way to align your financial plan with your values. Whether you are giving to your place of worship, a local food bank, a university, or a nonprofit close to your heart, QCDs are a way to make purposeful, impactful gifts from wealth you may not need to spend.
QCD Rules and Limitations
While QCDs are a powerful giving tool, the IRS sets some firm ground rules around who can use them, how much can be given, and what types of organizations qualify. Getting these details right is essential to ensure your donation qualifies for the tax benefit.
Here is what you need to know before initiating a QCD:
You Must Be Age 70½ or Older
You can only make a QCD after reaching age 70½ (i.e., on or after your 70½ birthday), not just in the year you turn 70½. This age requirement is strict, and distributions taken even one day before your half-birthday will not qualify.
QCDs Must Come from Eligible Retirement Accounts
QCDs can only be made from traditional IRAs, rollover IRAs, inherited IRAs, inactive Simplified Employee Pension (SEP) plans, and inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs. Inactive SEP and SIMPLE IRAs are accounts that no longer receive employer contributions.
They cannot be made from an employer-sponsored plan (i.e., 401(k)s, 403(b)s, 457s, etc.). If you want to use QCDs but have funds in an employer-sponsored plan, you will need to roll the money into a traditional IRA first. While QCDs may be made from Roth IRAs, it is generally inadvisable since Roth withdrawals are already tax-free and not subject to RMDs during your lifetime.
The Annual QCD Limit Is $108,000 (in 2025)
The IRS allows up to $108,000 per person per year in Qualified Charitable Distributions (indexed for inflation). For married couples, each spouse can make their own QCDs from their respective IRAs, effectively doubling the impact.
Keep in mind: This limit is separate from your standard charitable deduction limit and includes all QCDs made throughout the year. You can make multiple gifts to different charities, but the total cannot exceed the limit.
QCDs Must Go to a Qualified 501(c)(3) Charity
Not all charities are eligible. To count as a QCD, the donation must go to a qualified 501(c)(3) organization, a charitable organization eligible to receive tax-deductible contributions.
Some charities that do not qualify for receiving QCDs include Donor-Advised Funds (DAFs), private foundations, supporting organizations, and any entity that provides a personal benefit to you (such as tickets to an event or a fundraising dinner).
If you are not sure whether your chosen charity qualifies, check the IRS Tax Exempt Organization Search tool or ask your financial advisor or tax preparer for help.
The Distribution Must Be Made Directly to the Charity
To count as a QCD, the funds must be sent directly from your IRA custodian to the charitable organization. If the distribution is made payable to you and you later donate the funds, it will not qualify; you will owe income tax on the full amount.
Many IRA custodians offer a form or online tool specifically for making QCDs. Be sure to clearly indicate that the distribution is for charitable purposes.
QCDs Must Be Completed by December 31st
To count for a given tax year, a QCD must be processed by December 31st. Do not wait until the last week of the year; processing delays could jeopardize the tax treatment.
You Must Report It Correctly on Your Tax Return
QCDs show up as normal IRA distributions on Form 1099-R. That means it is your responsibility to properly report it on your tax return; otherwise, the IRS will assume it is fully taxable.
Make sure you also obtain a written acknowledgment from the charity that includes the donation amount and confirms that no goods or services were received in return.
State Tax Considerations
While QCDs offer clear federal tax benefits, state tax treatment may vary. If you are contemplating a QCD, talk with your tax professional about what the state tax implications would be for you.
QCDs vs. Traditional Charitable Giving
To better understand the advantages of QCDs, let's compare them with traditional charitable giving methods:
Feature | Qualified Charitable Distribution (QCD) | Traditional Charitable Donation |
|---|---|---|
Age Requirement | Donor must be 70½ or older | No age requirement |
Tax Benefit Type | Exclusion from income | Itemized deduction |
Benefit Available To | All taxpayers who meet the eligibility requirements | Only those who itemize |
Annual Limit | $108,000 per person (for 2025) | No annual limit, but the amount you can deduct is limited to your AGI and the type of donation. |
RMD Satisfaction | Counts toward RMD | Does not count toward RMD |
Who Should Consider a QCD?
A Qualified Charitable Distribution (QCD) can be a smart giving strategy for many retirees, but it is especially beneficial in specific situations. If any of the following apply to you, it may be worth exploring with your financial advisor:
You are over age 70½ and have a traditional IRA. Even if you are not yet subject to Required Minimum Distributions (RMDs), QCDs can still be a savvy way to reduce future RMD obligations by lowering your IRA balance over time.
You do not itemize deductions on your tax return. The standard deduction is high enough that many retirees no longer itemize. If you are one of them, donating cash from your checking account or highly appreciated stock from a brokerage account might not be enough to reduce your tax bill. A QCD allows you to get a tax benefit for charitable giving without itemizing.
You are already giving to charity. If charitable giving is part of your financial plan or personal values, a QCD might be a more efficient way to give. Rather than writing a check and taking a deduction (if you qualify), you are giving pre-tax money directly from your IRA, reducing your taxable income. Talk to your financial advisor or tax preparer to see what solution might work best in your situation.
You are subject to RMDs and want to reduce your taxable income. If RMDs are inflating your income and pushing you into a higher tax bracket, or affecting your Medicare premiums, a QCD lets you offset your RMD with charitable gifts and keep your Adjusted Gross Income (AGI) lower.
You want to leave a charitable legacy. For those with more than enough retirement income, QCDs are a meaningful way to begin giving from your estate while you are alive and seeing the impact firsthand. It is a chance to align your financial plan with your values and support causes close to your heart.
QCDs and the SECURE Act (and SECURE Act 2.0 Updates)
The SECURE Act (2019) and SECURE Act 2.0 (2022) brought several changes to retirement rules but also introduced some confusion around QCDs. Here is what you need to know about how these laws affect your charitable IRA giving strategy:
RMD Age Increased, But QCD Age Did Not
The SECURE Act raised the RMD age effective at the beginning of 2024. For individuals:
Born in 1950 or earlier: RMD remains at age 72. So, if you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled.
Born between 1951-1959: RMD begins at age 73. If you are turning 72 in 2023 and have already scheduled your withdrawal, consider updating your withdrawal plan.
Born in 1960 or later: RMD begins at age 75.
However, QCD eligibility still begins at age 70½. That means there is now a window of opportunity where you can make QCDs before you are required to take RMDs, potentially reducing future obligations.
Maximum Annual QCD Amount Indexed for Inflation
The annual limit for QCDs has remained at $100,000 annually since its inception in 2006. As of 2024, the annual allowable limit will adjust every year to be indexed with inflation. For 2025, the limit is $108,000.
One-Time QCD to a Split-Interest Entity
The law allows for a one-time election for a QCD to a split-interest entity. In 2025, donors can make a QCD of up to $54,000 (indexed for inflation) to fund a Charitable Remainder Unitrust (CRUT), Charitable Remainder Trust (CRT), or Charitable Gift Annuity (CGA). This is a more complex strategy, so if you are interested, it is worth discussing it with your financial advisor or tax preparer.
Frequently Asked Questions About QCDs
Can I make a QCD to any charity? No, the recipient must be a qualified 501(c)(3) organization eligible to receive tax-deductible contributions. Donor-advised funds, private foundations, and supporting organizations generally do not qualify. If you are not sure whether your chosen charity qualifies, check the IRS Tax Exempt Organization Search tool or ask your financial advisor or tax preparer for help.
How do QCDs affect my tax return? The QCD amount is excluded from your taxable income rather than taken as a deduction. Your 1099-R from the IRA custodian will not specifically identify the distribution as a QCD, so proper reporting on your tax return is crucial.
Can I split my QCD among multiple charities? Yes, you can use your QCD to support multiple qualified charitable organizations. Just be mindful that the sum of the distributions stays within the annual limit – $108,000 for 2025.
Do QCDs count toward my RMD? Yes, QCDs satisfy your RMD obligation up to the full amount of the required distribution.
Can I make a QCD from my 401(k)? No, QCDs cannot be made from an employer-sponsored plan (i.e., 401(k)s, 403(b)s, 457s, etc.); only from IRAs (traditional IRAs, rollover IRAs, inherited IRAs, inactive Simplified Employee Pension (SEP) plan, and inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs). Consider rolling over 401(k) funds to an IRA if you wish to use the QCD strategy.
How does a QCD differ from a charitable IRA rollover? "Charitable IRA rollover" is another term sometimes used for QCDs. They are also sometimes called "IRA Charitable Distributions." They all mean the same thing.
What if I have already taken my RMD for the year? Once you have taken your RMD, you cannot retroactively designate it as a QCD. However, you can still make QCDs up to the annual limit; they just will not count toward satisfying your RMD.
Can I make a QCD to fulfill a pledge? Yes, QCDs can be used to fulfill pledges to qualified charities without violating the "no goods or services received" requirement.
Final Thoughts
QCDs are one of the most effective ways to reduce taxes while supporting causes you care about in retirement. With proper planning, they can satisfy RMDs, lower your AGI, and align your financial plan with your values. Be sure to consult your financial and tax professionals to ensure your QCD strategy fits into your broader retirement plan.
Need help figuring out if a QCD fits into your financial plan? Reach out, we're here to help you make the most of your retirement and charitable giving needs. You can schedule a complimentary, no-obligation call with us here.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
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