Giving That’s Tax-Savvy: How Qualified Charitable Distributions (QCDs) Work
Charitable giving is not just about generosity—it can also be a practical component of a smart retirement and tax strategy. Qualified charitable distributions (QCDs) allow retirees to support nonprofit causes directly from an IRA while potentially reducing taxable income and satisfying required minimum distributions (RMDs). Here’s what to know and how to make the most of them.
What Is a Qualified Charitable Distribution (QCD)?
A QCD is a direct transfer of funds from a traditional IRA (including inherited IRAs) to an eligible 501(c)(3) organization. The key features include:
Age Requirement: You must be 70½ years or older to make a QCD.
Tax Impact: The distribution is excluded from taxable income, lowering your adjusted gross income (AGI).
RMD Satisfaction: If you’re subject to RMDs, a QCD can count toward meeting that requirement—without increasing your taxable income.
Key Rules and Limits
Annual QCD Limit: The maximum amount you can contribute as a QCD is indexed for inflation. For 2025, the limit is $108,000 per person. Spouses filing jointly can each make their own QCD up to the per-person limit.
One-Time Split-Interest Option: SECURE 2.0 introduced a once-in-a-lifetime QCD to certain split-interest arrangements (e.g., charitable remainder trusts). This special election is capped at $54,000 for 2025.
Eligible Accounts: QCDs can be made from traditional IRAs (including inherited IRAs). SEP and SIMPLE IRAs qualify only if there are no ongoing employer contributions for that year. Employer plans such as 401(k)s are not eligible.
Eligible Charities: Must be IRS-qualified public charities. Donor-advised funds, private foundations, and supporting organizations are excluded.
Why QCDs Can Be a Smart Move
AGI Reduction: Since QCDs are excluded from income, they may help reduce Medicare premium surcharges (IRMAA) and preserve certain deductions and credits.
Tax Simplification: Even if you don’t itemize deductions, a QCD can still deliver a tax benefit by keeping the amount out of your income entirely.
Charitable Impact: You can make meaningful gifts while managing your retirement income more efficiently.
Best Practices for Making a QCD
Quick QCD Checklist
I’m 70½ or older.
I’m using an eligible IRA account.
My chosen charity is eligible for QCDs.
The transfer is direct from the IRA custodian to the charity.
The gift will be completed by December 31 if counting toward an RMD.
I’ve kept acknowledgment letters and will review my 1099-R.
Tip: Work with a Fee-Only, Fiduciary Advisor
QCDs touch on tax law, retirement income planning, and charitable strategy. A fee-only, fiduciary financial advisor—legally required to act in your best interest—can help ensure your QCD approach is efficient, well-timed, and aligned with your overall goals.
At Parkshore Wealth Management, we help clients determine whether a QCD fits into their overall financial planning strategy. We serve clients virtually and from our offices in Granite Bay and Folsom, California, and Lehi and Logan, Utah.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.