QCDs: A Tax-Smart Way to Give
For individuals over the age of 70½, Qualified Charitable Distributions (QCDs) offer a powerful tax-saving strategy while supporting charitable causes.
What Is a QCD?
A QCD is a direct transfer of funds—up to $108,000 per individual in 2025—from your Individual Retirement Account (IRA) to a qualified charity. By donating through a QCD, you avoid recognizing the distribution as taxable income, which can help lower your Adjusted Gross Income (AGI) and reduce Medicare premiums or other tax-related costs.
Why Use a QCD?
For retirees subject to Required Minimum Distributions (RMDs), this strategy can be especially beneficial. If you are required to take $100,000 in RMDs, that amount would normally be taxed at your ordinary income tax rate. Additionally, a higher AGI can trigger higher Medicare premiums and other tax implications.
By using a QCD, you can satisfy your RMD requirement while avoiding the tax burden—allowing you to support your favorite charities in a tax-efficient way.
Key Considerations for QCDs
- The maximum QCD limit is $108,000 per person in 2025. If you are married filing jointly, you and your spouse can each contribute up to this limit, but you must have separate IRAs.
- Funds must be transferred directly from your IRA to the charity—if the distribution is taken personally first, it will count as taxable income.
- This strategy can be particularly useful if you don’t need your RMD for living expenses and want to reduce your overall tax burden.
A Win-Win for Charitable Giving and Tax Savings
QCDs provide an opportunity to give generously while lowering taxable income and managing your retirement distributions wisely. If you’re considering this strategy, consult with a financial advisor to ensure your donations are structured correctly.