A Tax-Smart Way to Give to Charity

By Holly Lieser, CPA

Many of our clients over age 70 are passionate about supporting charities that matter to them. What many don’t realize is that there is a simple, tax-efficient way to do that — directly from your IRA.

How it works

Qualified Charitable Distributions (QCDs) let people age 70½ or older give directly from their IRA to a qualified charity, up to the annual limit ($108,000 in 2025 and $111,000 in 2026).

If married, each spouse may exclude up to the annual limit if each has their own IRA.

The funds must be paid directly from their IRA custodian to the charity. If they withdraw the money first, the tax benefit is lost.

tax benefits

• QCDs are excluded from gross income, meaning the distribution is not taxed, and it can lower state taxable income as well.
• QCDs reduce Adjusted Gross Income (AGI) and taxable income. Lowering AGI can reduce the taxable portion of Social Security benefits, may prevent Medicare premium surcharges, may reduce Net Investment Income Tax (NIIT), and can reduce AGI-related phaseouts.
• Even if they take the standard deduction, a QCD produces a tax benefit equivalent to a charitable donation as an itemized deduction which gives this benefit to all taxpayers, not just high net worth individuals.
• For taxpayers aged 73 or older, QCDs allow you to satisfy your Required Minimum Distribution (RMD) without income recognition. They must make the QCD transfer before withdrawing your RMD for the year.
• QCDs reduce your IRA balance, lowering future RMDs. 

Coordination with Deductible Contributions

Retirees can make a QCD while still contributing to an IRA, but special rules apply. Any deductible contributions made after age 70½ will reduce the tax-free portion of the QCD until the amount is fully offset. They must track these contributions and apply reductions accordingly.

The Bottom Line 

QCDs are an efficient way for retirees to make charitable gifts. Retirees can support causes you care about while reducing taxes and managing your future RMDs.

415 Group Insight

At 415 Group, we help clients align their charitable giving with smart tax planning. QCDs can be a great way to do both. Contact your 415 Group advisor to see if a QCD makes sense for you.

ABOUT THE AUTHOR

Holly Lieser, CPA, is responsible for accounting and tax services for corporations, partnerships, LLCs, and individuals that count on 415 Group.