Moneywise and Yahoo Finance LLC may earn commissions or revenue through links to the content below.
For many retirees, the holiday season is the perfect time to give back. And there’s an IRS-approved trick that can take that generosity even further.
A qualified charitable distribution, or QCD, is a direct donation from your IRA that can reduce your tax bill while helping your favorite charity.
“This is one of the IRS’s best-kept secrets for retirees,” Ashton Lawrence, a certified financial planner at Mariner Wealth Advisors in Greenville, South Carolina, told CNBC (1).
So what exactly is QCD and how does it work?
A qualified charitable distribution is a direct transfer from your pre-tax IRA to a qualified charity. Instead of withdrawing the money and then donating it, which counts as taxable income because it affects your adjusted gross income (AGI), you send it from your IRA and leave it off your tax return entirely.
According to Fidelity, QCDs are most optimal for retirees who are 70½ or older and take required minimum distributions (RMDs), who don’t itemize deductions and have IRA balances that are typically in the mid-six figures or higher. Retirees with small IRAs may still benefit, but the tax impact may be less dramatic (2).
For 2025, according to the IRS (3), retirees 70½ or older can donate up to $108,000 this way. Married couples can each give up to that limit if each spouse qualifies. Thanks to the SAFE Act 2.0, that cap now adjusts for inflation every year.
According to the IRS, most Americans, 91% of filers, take the standard deduction instead of itemizing (4). While some choose not to itemize because it legitimately gives a bigger deduction, others choose this route because it’s easier. This means that their regular charitable donations do not actually reduce their taxable income.
QCDs are different.
There is no deduction because the money is simply kept out of income, which is “better than a deduction,” according to Juan Ross, CFP and partner at Forum Financial Management in Thousand Oaks, California (1).
If you’re 73 or older, whether you need the cash or not, you should start taking required minimum distributions (RMDs) from your pretax retirement accounts. Skip it, and the IRS hits you with a penalty.
A QCD lets you donate part or all of your RMD directly to a charity, meeting the need without being taxed.
“For my philanthropic clients, it’s almost a no-brainer,” added Jim Guarino, CFP and managing director at Baker Newman Noyes in Woburn, Massachusetts (1).
While QCDs can help lower your tax bill and lower your RMD, figuring out the right amount can be challenging. But a financial advisor can help you work out the math.
You can find an experienced financial advisor near you for free through Advisor.com. Their network includes fiduciaries — who are legally bound to act in your best interests — so you can trust that the advice you receive is unbiased.
What’s more, advisors on the platform go through a rigorous vetting process based on track record, assets under management (AUM), client ratio, and regulatory background.
Here’s how to get started: Just enter some basic information about your financial situation and goals, then Advisor.com’s AI-powered advisor matching technology will match you with the best fit.
And for households looking for more personalized help, the Advisor Wealth Management (AWM) platform blends AI-powered tools with hands-on support from experts to keep your plan on track.
But choosing a mentor still comes down to personal relationships. That’s why Advisor.com lets you set up a free initial consultation to see if they’re a good fit for you, with no obligation to hire.
To make a QCD, you need an IRA, but what if your retirement funds are still in a 401(k) or another plan?
You’ll have to roll it over to a traditional IRA. Most 401(k) and employer plans allow transfers to IRAs, which are then QCD-eligible. Once the funds are in the IRA, you can instruct the custodian to send the donation directly to a qualified 501(c)(3) charity, which keeps the money out of your taxable income.
Keep in mind that timing is important. IRS rules generally require rollovers to be completed within 60 days to avoid penalties. Donor-advised funds and private foundations are not eligible, so double-check the charity before transferring.
By moving your 401(k) or other retirement savings into an IRA first, you can unlock the full tax benefits of QCDs even if you didn’t start with a qualified account.
Key points to remember:
-
You must be at least 70½ when the donation leaves your IRA — note that SEP and SIMPLE IRAs are not eligible. (5)
-
Ask your IRA custodian to send the money directly to the charity and not to you.
-
Verify that the organization is a qualified 501(c)(3) and that donor-advised funds and private foundations do not count.
-
Keep all your receipts and records.
Federally, QCDs are excluded from income, but tax treatment may vary by state. Some states are fully compliant with IRS regulations, while others are not. Before you move money, double-check with your state’s Department of Revenue or a tax professional.
For retirees who want to give generously and cut their tax bill, QCDs can be a win-win. In one move, you can satisfy RMDs, keep your income low, and support causes you care about.
While QCDs are a great way to give back, understanding how they affect your finances, especially in retirement, is important.
High-net-worth individuals can receive proactive advice throughout their financial lives – from investments and taxes to estate planning – through the range.
You can get 24/7 professional advice from experts at a fraction of the cost of traditional certified financial planners (CFPs). The range offers 0% AUM fees for advisory services and a flat-fee structure so you can protect more of your assets.
They offer an all-in-one solution for everything from alternative asset management to taxes – all informed by modern AI solutions, but backed by a team of certified financial professionals.
What’s more, you can get a custom cash flow analysis – helping you work out how much of your disposable income you can allocate to qualified charitable giving without affecting your lifestyle.
The best part? You can book a free demo with a range of experts to see if they can meet your comprehensive financial needs.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich).
We rely only on vetted sources and reliable third-party reporting. For details, see our Editorial ethics and guidelines.
We rely only on vetted sources and reliable third-party reporting. For details, see our editorial ethics and guidelines.
CNBC (1); Fidelity Charity (2); IRS (3, 5); Tax Policy Center (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
