If you’re retired and starting to take Required Minimum Distributions (RMDs) from your IRA, you might be wondering:
“How can I reduce my tax burden while making a difference in the world?”
For charitably inclined individuals, a Qualified Charitable Distribution (QCD) may be worth exploring. This strategy allows you to support organizations you care about while potentially lowering your taxable income.
🧾 What Is a QCD?
A Qualified Charitable Distribution is a provision in the tax code that allows individuals age 70½ or older to donate up to $100,000 per year directly from their IRA to a qualified 501(c)(3) charitable organization. If done properly, this donation may be excluded from taxable income.
If you’re subject to RMDs (generally beginning at age 73), a properly executed QCD can count toward satisfying your annual withdrawal requirement — without increasing your adjusted gross income (AGI).
💡 How a QCD May Help Reduce Your Tax Burden
Because a QCD is not included in your taxable income, it may reduce your AGI. A lower AGI can impact other areas of your financial life, including:
- Your Medicare premiums, which are income-based
- The taxability of Social Security benefits
- Exposure to the 3.8% Medicare surtax
Unlike traditional charitable gifts that require itemizing deductions, a QCD typically provides a benefit even if you take the standard deduction.
🛑 Rules to Keep in Mind
To qualify as a QCD:
- The funds must go directly from your IRA custodian to the qualified charity — not through your personal bank account.
- The charity must be a qualified 501(c)(3) organization.
- QCDs cannot be made from 401(k)s or employer-sponsored plans — only from IRAs.
- You cannot also claim the donation as a deduction on your tax return.
- The maximum per individual is $100,000 per year, indexed for inflation starting in 2024.
Because the rules are specific, it’s a good idea to consult with a tax professional before initiating a QCD.
👥 Who Might Consider a QCD?
In our experience working with retirees — especially in communities like The Villages, FL — we often meet individuals who:
- Don’t need all of their RMD income to fund their lifestyle
- Want to reduce their income-related taxes
- Are passionate about giving back, but prefer a simple and effective strategy
- Are in a second marriage or managing blended family planning, and want to give meaningfully without complicating inheritance plans
📊 A Simplified Example
Let’s say you’re required to withdraw $40,000 this year. You donate $10,000 directly to a qualified charity through a QCD. That means only $30,000 will be counted as taxable income — possibly keeping you in a lower tax bracket or reducing income-related costs.
💬 Is It Time to Revisit Your RMD Strategy?
We help clients explore strategies that may simplify their financial life — including ways to reduce tax exposure and give with purpose.
Whether or not a QCD is right for you depends on your full financial picture, goals, and values. We’ll walk you through the basics in clear, jargon-free language so you can decide what works best.
This content is for informational and educational purposes only and is not intended as tax, legal, or investment advice. Please consult a qualified tax advisor or legal professional regarding your individual circumstances.
