Qualified Charitable Distributions

By Craig Pellet, CPA

Generally, taxpayers over the age of 70.5 can make qualified charitable distributions (QCDs) from their IRAs. These distributions are grants made to charity, directly from a traditional IRA. Such grants are limited to $108,000 in 2025. QCDs are an effective way for retirees to make gifts to charity. And QCDs yield tax benefits beyond typical donations to charity. Here are some reasons to consider QCDs when planning your charitable giving.

It satisfies your RMD

Making a QCD counts towards your annual required minimum distribution, or RMD. So, if you must take an RMD of $20,000, and instead make a grant to charity from your IRA of $20,000, there’s no need to take any additional distributions from your IRA for the year.

QCDs are an exclusion from income, not a deduction

With a QCD, you simply don’t include the distribution on your return at all. That keeps your gross income lower. If, instead, if you receive an IRA distribution, then make a donation of the cash you receive, your gross income is higher, even when it is then offset with a donation deduction.  Lower income is good for a few reasons.

First, lots of tax benefits are tied to lower income, and phase out at higher income levels. Other taxes kick in when your income is over a certain amount. Consider the net investment income tax, which applies to adjusted gross income over $200,000 for single individuals, and $250,000 for married couples. Using a QCD instead of a regular donation could help reduce your exposure to net investment income tax.

Some deductions are only available if they exceed a percentage of your income. For example, medical expenses are only deductible when they exceed 7.5% of your income. If your income is lower, more of your medical expenses could be deductible.

Using QCDs could also reduce your Medicare premiums. If you are subject to income adjusted Medicare premiums (IRMAA), using a QCD could help lower your income, thus reducing the amount you pay for Medicare.

Finally, since QCDs are not considered an itemized deduction, you can still claim your standard deduction, and get the full tax benefit for your charitable distribution.

Now, the downsides

Of course, any tax benefit will have its limitations.

QCDs cannot be made to a donor advised fund. They must go straight to a charity. Only IRAs are eligible for QCDs. You can’t use this strategy from an employer sponsored plan, like a 401(k). You must be of retirement age. QCDs are only allowed if you are over 70.5 years old.

Finally, no benefits can be received in exchange for your donation. Want to buy those gala tickets? You can’t do it with a QCD. Receiving any benefit would disqualify the entire distribution.

Reach out to JS+A today to see if Qualified Charitable Distributions are a worthwhile strategy for you!