QCDs Are a Tax-Smart Way for Retirees To Donate to Charity

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Here’s a tax-smart way for traditional IRA owners, aged 70½ or older, to give to charity: Make a qualified charitable distribution. 

For 2024, you can transfer up to $105,000 directly from your IRA to charity. For individuals with more than one IRA, the $105,000 cap applies per account owner, not per IRA. The amount next year will be a bit higher because of inflation indexing. Spouses who each have an IRA can do their own QCD. You can each give up to $105,000, provided each of you has substantial amounts in your traditional IRAs. There are three main tax benefits of QCDs. 

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• First, they are not taxable to you 
• Second, they are not added to your adjusted gross income, which can help you mitigate surcharges on your 2026 monthly Medicare premiums. The QCD strategy is a good way to get tax savings from charitable gifts for taxpayers who don’t itemize because of higher standard deductions. But even if you do itemize on Schedule A, QCDs are a good tax strategy because the distributions don’t increase your AGI. 
• Third, QCDs can count toward your annual required minimum distributions, but be sure to do the QCD before taking your full RMD for the year for yourself. Note you can’t deduct the QCD as a charitable contribution on Schedule A.

There are a few other important QCD rules that you should be aware of: 

Only transfers of money from your IRA directly to charity qualify as QCDs. Most IRA custodians will require you to fill out a form requesting the charitable payout. The custodian will then either send a check directly to the charity or make a check payable to the charity and send it to you to mail. In either circumstance, get a receipt from the charity. If you happen to have check-writing privileges on your IRA account and want to write the check to the charity yourself, first ask the custodian if that’s OK. 

The QCD money must generally go to a Section 501(c)(3) organization. The SECURE 2.0 law provides a limited exception to this. IRA owners can do a one-time QCD of up to $53,000 through a charitable gift annuity, a charitable remainder unitrust or a charitable remainder annuity trust. 

You cannot do a QCD from a 401(k), 403(b) or other workplace retirement plan. You can only do a QCD from your IRA.

You must be at least 70½ on the QCD date. If you turn 70½ on Nov. 1, for example, you must wait until that day or later to make the transfer.

There’s a complex rule for people who make deductible IRA contributions after 70½. Essentially, these IRA contributions reduce your allowable tax-free QCD amount until they are used up. 

Here’s a simple example: A 74-year-old working woman wants to do a QCD for the first time in 2024. For 2020, 2021, 2022 and 2023, she made deductible contributions to her traditional IRA totaling $28,500. If the woman transfers $25,000 of IRA money to charity in 2024, the full $25,000 is taxable to her because it is less than the $28,500 of post-70½ deductible payins. Let’s say that in 2025, she then transfers $20,000 to charity directly from her IRA. $16,500 will be a nontaxable QCD, and $3,500 will be treated as a normal payout.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.