How a QCD Can Help You Reduce Taxes
You can give to charity in many ways such as by writing a check, buying tickets to an event, or even donating physical goods. In many cases, a portion (or all) of these contributions is also tax-deductible. If your objectives are to disperse money to charity and act with tax efficiency in mind, however, a better approach may exist via a qualified charitable distribution (QCD).
What is a QCD, and how does it work?
A qualified charitable distribution (QCD) is a direct transfer of funds from your individual retirement account (IRA) to a qualified charity (typically a 501(c)(3) organization) as defined by the Internal Revenue Code: allowing individuals aged 70½ or older to transfer up to $115,000 per year from their traditional IRA directly to a qualified charity. The process itself is straightforward. After selecting a qualifying charity—or multiple, so long as the total amount stays within the annual QCD limit—you instruct your retirement account custodian to make a direct transfer to the charity.
QCD benefits
Key advantages of swapping a cash gift for a QCD include…
Reducing taxable income
Whenever you withdraw money from your IRA, this usually counts as income—meaning you’ll need to pay taxes on it accordingly. When you use a QCD, however, that money isn’t reported as income at all so your taxable income doesn’t go up (nor will you owe any taxes on the amount donated to charity).
Helping to satisfy RMD requirements
RMDs (required minimum distributions) are the minimum amounts you must withdraw from specific tax-deferred retirement accounts beginning at age 73 (age 75, beginning in 2033), even if you don’t need or want the funds. RMD rules apply to employer-sponsored retirement plans such as 401(k), 403(b), profit-sharing, and 457(b) plans as well as to traditional IRAs and IRA-based plans like SEPs, SARSEPs, and SIMPLE IRAs. Roth IRAs are subject to RMDs only after the owner's death, with QCDs ultimately often used to satisfy some (or all) of your RMD obligations since your QCD amount counts toward these requirements.
Helping to reduce future RMD requirements
Qualified charitable distributions can also help reduce future RMD requirements since you’re allowed to begin making QCDs at age 70½ (about 2½ years before RMDs are required). Giving to charity from your IRA early on will decrease your overall IRA balance, which matters since future RMDs are based on your IRA’s year-end value and life expectancy factor; the smaller your IRA balance, the less you’re required to withdraw each year. Keep in mind, however, that a direct tax benefit from QCDs only appears upon reaching the age when RMDs begin—since these count toward your taxable income.
Reducing exposure to Medicare surcharges and Social Security taxes
Medicare levies surcharges (“IRMAA”) on Medicare Part B and D premiums based on your modified adjusted gross income (MAGI) from two years prior (e.g., your IRMAA surcharge for 2026 is based on your 2024 MAGI). You essentially increase your taxable income once you begin taking RMDs—making it more likely you’ll need to pay IRMAA surcharges—with qualified charitable distributions eliminating the taxable income normally triggered by taking the RMD, reducing your modified adjusted gross income (MAGI). QCDs can thus help minimize (or even prevent) Medicare surcharges, with this same concept applying to Social Security taxes since a QCD can keep you below the income thresholds triggering these.
Supporting Roth conversions
A Roth IRA conversion involves transferring some or all of your savings from a traditional IRA, SEP, SIMPLE IRA, or employer-sponsored retirement plan (such as a 401(k) or 403(b)) into a Roth IRA. While this makes for tax-free future withdrawals, the converted amount is subject to income tax in the year of the conversion. Many investors find it useful to make a QCD in the same year as a Roth conversion, in turn helping to offset the taxable income generated from the conversion—potentially reducing your overall tax liability.
QCD disadvantages
A few disadvantages to note with respect to QCDs include the following…
QCDs don’t eliminate capital gains
QCDs differ from, say, donor-advised funds (DAFs) with respect to corresponding tax impacts. Think of DAFs as a type of charitable account giving you the means to donate a wide variety of assets (e.g., cash and stock) to a nonprofit organization. While donating appreciated stock to a DAF allows you to claim a charitable deduction and steer clear of capital gains tax on any appreciation, QCDs don’t affect your unrealized capital gains since they’re made directly from retirement accounts.
QCDs can’t be made to just any charity
Be sure to confirm the charity’s status before making a donation since not all nonprofits can accept QCDs; they must be qualified 501(c)(3) public charities, with QCDs not permitted for donor-advised funds, private foundations, or supporting organizations.
Key QCD rules to know
You must be at least 70½ years old
To take advantage of the QCD rule, you must be at least 70½ years old (meaning if you own an IRA and turn 70 on April 30, for example, you’re not eligible to make a QCD until October 30 of the same year).
You can’t transfer money from any retirement account
Funds must be transferred from an IRA—such as a traditional IRA, inherited IRA, or inactive SEP and SIMPLE IRA—rather than from an employer-sponsored retirement account like a 401(k).
You must transfer monies to a qualified charity
Your QCD transfer must be made directly to a qualified charity, typically a 501(c)(3) organization authorized to receive tax-deductible contributions. Consult your tax advisor or the IRS to confirm the charity is IRS-approved, with the charity likewise required to provide a written receipt substantiating the donation amount.
You must make QCDs by the end of the year
QCDs must be completed by the same deadline as RMDs, typically by December 31 of the same year you want it to count.
You can’t double dip
Since QCDs are excluded from income, you cannot "double dip" and also claim them as an itemized deduction on your tax return.
You can give more (or less) than your RMD
You can use QCDs to satisfy all or part of your RMDs. Should you choose to donate less than your full RMD to charity, you must withdraw the remaining amount as a standard RMD (e.g., if your RMD is $5,000 and you donate $2,500 to charity via a QCD, you must withdraw the remaining $2,500 as a regular RMD). Conversely, you may donate more than your RMD amount in a given year—up to $115,000—through QCDs, though you can’t carry any excess forward to satisfy RMDs in future years.
One Big Beautiful Bill Act (OBBBA): QCD impacts
The One Big Beautiful Bill Act (OBBBA) passed into law in July 2025 introduced new rules for charitable donation deductions (effective in 2026), with QCDs potentially offering more tax savings than itemizing charitable donations in some cases since you can now only write off those greater than 0.5% of your adjusted gross income (AGI). If your AGI is $90,000, for example, you can only deduct the portion of donations exceeding $450 (0.5% of $90,000); if you contribute $3,000 in cash to a qualified nonprofit, only $2,550 is eligible for a deduction. For those who don't itemize, the OBBA now allows single taxpayers to claim a deduction of up to $1,000 ($2,000 for married couples filing jointly) for cash gifts to operating charities. You should take this added deduction into account when choosing between cash donations and QCDs.
QCDs can fund split-interest entities
A split-interest entity is a special type of trust or fund divvying up benefits between a charity and non-charitable beneficiaries (e.g., you or your family). You could establish a trust giving you income for life, for example, with the remainder passing to a charity upon your death. As of 2023, IRA owners can make a one-time QCD election to fund a split-interest entity with a maximum amount of $54,000 ($108,000 for married couples, both 70½ or older)—applied to a charitable remainder unitrust, charitable remainder annuity trust, or charitable gift annuity.
Three common QCD mistakes
Beyond non-qualified charity donations, common QCD mistakes include:
1. Making the distribution payable to you rather than the charity, thus counting as regular income and removing the tax benefit.
2. Expecting a gift in return, preventing your gift from counting as a QCD.
3. Taking your RMD before making a QCD, thus getting taxed on the withdrawal (even if you donate the same amount later on).
In sum: what to know if you’re considering a QCD
If you’re looking to reduce your adjusted gross income, lower your taxes, and give to charity, a qualified charitable distribution is often a viable option—provided you’re about to begin (or have already started) taking RMDs and also have an IRA account.
Have questions about QCDs? Schedule a FREE discovery call with one of our CFP® professionals to get them answered.
FAQs
-
Married couples filing jointly who each have their own IRA can take advantage of the QCD rule and each donate up to $115,000 per year to the eligible charities of their choice.
-
In this case, the excess amount isn’t carried over but added to your gross income (so you’d pay taxes accordingly).
-
Yes, this is indeed allowed provided you stay within annual QCD limits.
-
You aren’t allowed to use a QCD to purchase charity sales items (e.g., raffle tickets or auction bids), nor can you receive any charitable donation benefits in return for your QCD.
-
While it’s possible to use Roth IRAs for QCDs, owners won’t see any corresponding benefit since these aren’t subject to RMDs and distributions are generally tax-free.
-
Be sure to inform your accountant that you completed a QCD (ideally via your IRA custodian, who’ll send you a 1099 form) and hang on to the donation receipt (known as a contemporaneous written acknowledgement or “CWA”) for your tax records.
-
No, this type of transaction is prohibited.
About the author
The content in this post was developed by our team of writers and reviewed by our team of CFP® professionals here at Vision Retirement.
Retirement Planning | Advice | Investment Management
———
Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. Schedule a no-obligation consultation with one of our financial advisors today!
Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting. To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
