IRA Owners Save Taxes Using Qualified Charitable Distributions [QCDs]

QCDs combine charitable giving and tax savings for retired IRA owners.

For almost twenty years, qualified charitable distributions (QCDs) have given retirees the ability to support causes close to their hearts while mitigating unwelcome taxes on certain retirement account distributions. Learn how this can enhance your estate plan.

Lower Income Taxes

QCDs allow traditional IRA owners who are 70 ½ years or older to convert what would have been a taxable distribution into an immediate gift to charity. In 2025, an individual may transfer up to $108,000 from a traditional IRA directly to one or more qualified charities of their choosing. When the funds go directly from the IRA account to the charitable recipient, the donor can count the gift toward his or her required minimum distribution [RMD] for the year, and those dollars will escape inclusion in their adjusted gross income [AGI].

Keeping AGI low by using QCDs can have several positive effects — for example, it may lower Medicare Parts B and D premiums and reduce the share of Social Security benefits subject to federal income tax. Any eligible taxpayer — whether or not they are able to itemize deductions — can take advantage of QCDs, setting them apart from typical charitable donations from non-IRA accounts and assets. For individuals pushed into higher tax brackets by large RMDs, the QCD technique offers a practical way to trim their tax bill while providing meaningful support to favored causes and organizations.

QCDs Can Benefit Heirs

For estate planning, traditional IRAs are an ideal way to make lifetime gifts and post-death bequests to charities. While IRAs pass unexpected tax bills to heirs, charities do not pay income tax or capital gains tax. Furthermore, unlike stocks or real estate owned at death, assets inside traditional IRAs do not receive a step-up in basis, and, after the SECURE Act, most non-spouse/non-charity beneficiaries must completely withdraw funds from an inherited IRA account within 10 years and pay ordinary income tax on the distributions.

Every dollar withdrawn from an inherited IRA by a beneficiary is taxed as ordinary income, often during their peak earning years. By redirecting lifetime RMDs to charity through QCDs instead of gifting assets that would have received a favorable stepped-up basis at death, an IRA owner can gradually lower the account balance and lighten the eventual income tax load on beneficiaries — all without worrying about the limits that normally restrict itemized charitable deductions.

Common QCD Mistakes

Successfully utilizing QCDs and benefitting from lower taxes requires strict adherence to IRS rules. Here are some mistakes to avoid:

Indirect Transfer. The IRA custodian must be instructed to transfer funds directly to the qualified charity. If the account owner receives the distribution before subsequently donating to charity, the IRS will treat the distribution as taxable income, not a QCD.

No Written Receipt. The charitable organization must provide written confirmation of receiving the donation, known as a “Contemporaneous Written Acknowledgment.” The IRS requires this documentation for proper reporting and compliance. Fortunately, most organizations are well-versed in providing donors with this necessary paperwork.

Improper Recipient. Distributions must go to the correct type of entity. QCD distributions must go to 501(c)(3) charitable organizations. Certain charitable entities — such as donor-advised funds and private foundations — are expressly excluded from eligibility as QCD recipients under federal law.

Timing the QCD After RMDs. If you intend to make a QCD, the “first-dollars-out” of your IRA in a calendar year should go toward the QCD. Distributions that take place later in the year will go toward the remaining RMD amount, if any. If distributions do not go to a qualified charity, they are characterized as taxable income. A QCD later in the same year cannot be retroactively attributed to an earlier taxable distribution. For example:

• Donna's RMD is $5,000. In January, she distributes $5,000 to herself from her traditional IRA. In August, she makes a $5,000 QCD to The National Multiple Sclerosis Society. The QCD in August does not count toward her RMD because it took place after the January distribution. She must pay income tax on the full $5,000 distribution from January.

  
  

• Donna's RMD is $5,000. In January, she makes a $5,000 QCD to The National Multiple Sclerosis Society. She can attribute this to her RMD and is not required to distribute additional funds from her IRA that year. The QCD counts toward her RMD because it took place before making any distributions to herself.

QCDs Can Start Years Before RMDs

As soon as you reach the age of 70½  — regardless of when your RMDs must begin — you can utilize QCDs. This allows retirees more time for planning purposes and offers greater flexibility.

Under current law, most individuals will not be required to take RMDs until age 73, and, for those born in 1960 or later, IRA distributions are not mandated until age 75. This expanded planning period further increases the value of QCDs, giving charitably inclined individuals additional years to reduce IRA balances, meet philanthropic goals, and better manage RMDs.

Enjoy the Act of Giving

While QCDs offer meaningful income tax advantages, they are generally not the right fit for an IRA owner who does not have charitable intent. However, for many people, IRAs represent more than just numbers on a statement — they reflect decades of disciplined saving, hard work, and deferred gratification. Seeing some of those funds go to charity can be a deeply rewarding and purposeful act — guided not just by tax strategy but by thoughtful intent.

In that sense, QCDs represent prudent actions for the charitably inclined, redirecting dollars to make a lasting impact on causes that matter. With careful planning, each distribution will support organizations that reflect your values, lessen today’s income tax bite, and address the future tax bill awaiting your heirs.

But estate planning is not just about your assets; it is about thoughtfully creating an intentional tomorrow for the important people in your life and the causes you care about. By using QCDs as part of your wholistic estate plan, you can meet important financial objectives while actively demonstrating your values to the next generation and to the wider community — creating a legacy measured not only by the size of your estate or the taxes you save, but by the lives you touch for good.