For retirees with a healthy nest egg in tax-deferred accounts, hitting age 73 comes with a new milestone: Required Minimum Distributions (RMDs). While it’s a sign of financial success, those RMDs can come with a not-so-fun side effect—higher taxes! The bigger your account balance, the larger your RMD, which could nudge you into a higher tax bracket.
But here’s the good news: if charitable giving is part of your financial plan, a Qualified Charitable Distribution (QCD) can be a game-changer. It’s a tax-smart way to support the causes you love while keeping Uncle Sam from taking a bigger bite out of your savings. Giving back has never been so rewarding!
What is a QCD?
QCDs allow individuals age 70½ and older to make tax-free donations directly from an IRA to a qualified charity, potentially satisfying all or part of their annual RMDs.
Generally, you can make a QCD from any tax-deferred IRA account, such as a traditional IRA, inherited IRA, SIMPLE IRA, or SEP IRA. However, a direct transfer of a QCD from a SIMPLE or SEP IRA can only be done if the account is inactive—meaning you’re no longer contributing to it. That said, the IRS does not allow you to make a charitable contribution from a workplace retirement plan, like a 401(k).
What are the QCD limits?
For tax year 2025, you can donate up to $108,000 (For married couples, you can each donate up to your individual annual limit). You can also use up to $54,000 in 2025 of a QCD to make a one-time donation to a charitable gift annuity (CGA) or charitable remainder trust (CRT).
Are QCDs tax deductible?
A QCD doesn’t offer a tax deduction, but the QCD amount isn’t included in your taxable income either. In some cases, the tax benefits of a QCD could outweigh the charitable deduction you would have received from donating cash or other assets to an eligible charity.
Here is an example of when a QCD could make sense. Say you’re 75 years old and single, and you need $120,000 in income this year to cover your living expenses. Your RMD for the year is $110,000 and you’ll receive another $40,000 from a pension plan—pushing your total taxable income to $150,000. That leaves you with an additional $30,000 of income that you don’t necessarily need.
You could donate the excess cash to your favorite charity and write-off the amount on your tax return. But by using a QCD to transfer the $30,000 directly to a charitable organization, you could pay thousands less in income taxes instead. A much smarter and tax-efficient way to give.
Donating with Cash vs. QCD
Cash is not king here. If you take your full RMD and then donate cash, this will likely result in a higher tax bill than if you were to give through a QCD. Encourage your donors to talk with a tax professional or their financial advisor to see if a QCD makes sense for their situation.
