There’s a tax-smart way to give to charity if you’re 70½ or older—one that reduces your taxable income while supporting your favorite causes. Known as a Qualified Charitable Distribution (QCD), it’s one of the most underutilized tax planning tools.
What Is a Qualified Charitable Distribution?
IRA holders are allowed to donate up to $108,000 in 2025 ($115,000 in 2026) through qualified charitable distributions from their taxable accounts without taking required minimum distributions (RMD). As a result, donors may avoid the phasing out of other tax deductions or being pushed into higher tax brackets.In simple terms? Rather than taking your RMD, paying income tax on it, and then transferring the funds to charity, a QCD lets you donate directly from your IRA. In addition to counting toward your RMD (if you’re required to take one), the donation does not increase your taxable income.
Why QCDs Matter More Than Ever
With the 2017 Tax Cuts and Jobs Act (TCJA) and the 2025 “One Big Beautiful Bill Act” (OBBBA), the standard deduction was significantly raised. As a result, many taxpayers’ itemized deductions, including charitable donations, don’t exceed the higher standard deduction, so a standard deduction makes more sense. Because of this, QCDs are especially valuable, since you can still benefit from a large donation without itemizing.Beginning in 2026, the OBBBA will increase the ceiling on itemized charitable contributions by 0.5 percent of AGI and limit the value of deductions for high earners.
This problem can be bypassed with a QCD. If you take the standard deduction, you can still take advantage of tax benefits. As a result, it’s one of the most effective giving strategies for retirees.
Who Can Use a QCD?
To qualify, you must meet all the following requirements:- A person must be 70½ or older at the time of distribution (not just by the end of the year).
- The money comes from a traditional individual retirement account (IRA). In general, Roth IRAs and 401(k)s don’t qualify, although you are allowed to roll funds into a traditional IRA before applying.
- A qualified 501(c)(3) charity receives the funds directly. The distribution cannot be taken by you and donated to the organization—it must go directly to the IRA custodian.
- The charity must qualify. Private foundations, donor-advised funds, and supporting organizations don’t count.
How QCDs Work in Practice
Here’s a quick example:In this scenario, Carol, age 74, must take a $30,000 RMD this year. Normally, that $30,000 would be added to her taxable income, potentially increasing her Medicare premiums and bumping her into a higher tax bracket.
She instead instructs her IRA custodian to send $10,000 directly to her local food bank as a QCD. The $10,000 counts toward her RMD, but it’s not taxed. The remaining $20,000 is reported as taxable income only.
The Tax Benefits of a QCD
You can reduce your taxable income directly by making a qualified charitable distribution, rather than claiming it as a deduction. Financially, having that distinction can have a ripple effect in the following ways.Reduces Your Taxable Income
If you make a QCD, the amount you donate is excluded from your taxable income. By taking a regular distribution and donating the money separately, you can lower your overall tax bill.Satisfies RMDs
A QCD can count toward your annual required minimum distribution if you’re 73 or older. By fulfilling your withdrawal requirement without increasing your taxable income, you can fulfill IRS rules and support a cause you care about at the same time.Lowers Your AGI
Since QCDs don’t count toward your income, they can reduce your AGI, which can result in several indirect tax benefits:- A reduction in Medicare Part D and B premiums (IRMAA).
- You will pay less tax on your Social Security benefits.
- Improved tax credit and deduction eligibility according to income.
Benefits for Standard Deduction Filers
Through a QCD, you can still receive a tax benefit from charitable giving even if you don’t itemize your deductions. Since the tax break is an income exclusion rather than itemized deductions, it’s a great deal for retirees who take the standard deduction.It Can Help Reduce Estate Taxes
You can also use the proceeds from a traditional IRA for charitable giving as part of your estate plan. In contrast to inherited IRA distributions, QCDs allow you to preserve other assets (like appreciated stock) to pass on to heirs.How to Set Up a Qualified Charitable Distribution
QCDs are straightforward to execute, but precision is important. To do it right, follow these steps:- Contact your IRA custodian. For QCDs, most financial institutions have a specific process or form. Don’t make the check payable to you; make it payable to the charity.
- Confirm the charity’s eligibility. Confirm that the organization is a 501(c)(3). Generally, religious, educational, and humanitarian nonprofits qualify.
- Request a written acknowledgment. An official letter should be provided confirming the amount and that no goods or services were received in return.
- Keep good records. QCDs must be reported correctly on your tax return.
- Coordinate with your tax advisor or preparer. If you’re combining QCDs with other retirement income strategies, timing and documentation are essential.
Reporting QCDs on Your Tax Return
Despite not being taxed as income, QCDs are still reported on your Form 1099-R, which includes all distributions from your IRA.In your Form 1040, you’ll list the total distribution on Line 4a (IRA Distributions), and then only the taxable portion on Line 4b after subtracting your QCD. To clarify the exclusion, write “QCD” next to that line.
How QCDs Fit Into a Broader Retirement Strategy
As part of your overall retirement tax plan, consider QCDs. Combined with other strategies such as Roth conversions, charitable trusts, and donor-advised funds, they can enhance financial planning.- It may be possible to combine QCDs with Roth conversions to manage your taxable income while shifting other assets into tax-free accounts.
- Alternatively, if you haven’t yet begun taking RMDs, you can still reduce future withdrawals by making QCDs at age 70½, two years before RMDs take effect at age 73.
Common Mistakes to Avoid
Sometimes even experienced investors make mistakes due to the fine print. As such, beware of these pitfalls:- Taking the distribution first and then donating it yourself. The donation must be made directly from your IRA to the charity.
- Using ineligible accounts, such as Roth IRAs and 401(k)s. You may need to transfer the funds to a traditional IRA first if necessary.
- Donations to donor-advised funds or private foundations do not qualify.
- To count for that tax year, the QCD must clear before December 31.
Final Thoughts
Using a Qualified Charitable Distribution goes beyond tax planning—it is a way to maximize the impact of your giving. Whether you’re donating to local nonprofits, your alma mater, or a cause close to your heart, a QCD helps you keep more of your income in your pocket.If you’re considering any tax-related strategy, you should speak with your financial advisor or tax professional first. The QCD, however, can turn generosity into a genuine financial advantage for retirees who love to give back.
The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.