The early months of the year are important for taxpayers ages 70½ and older who have traditional IRAs.
The right plan developed early in the year can reduce taxes on required minimum distributions this year and for years to come. Not planning, or waiting until later in the year, can mean lost opportunities and routinely costs taxpayers a bundle.
Traditional IRA owners ages 70½ and older have available to them one of the most powerful tax and charitable-giving tools, the qualified charitable distribution.
RMDs bedevil many traditional IRA owners as they age. The rules force them to take distributions from their IRAs whether they need the money or not. A higher percentage of the IRA must be distributed each year.
The distributions are taxable except to the extent nondeductible contributions were made to the IRA. The distributions increase adjusted gross income and so can trigger or increase the Stealth Taxes, such as the Medicare premium surtax, inclusion of Social Security benefits in gross income, the 3.8% net investment income tax, and more.
For IRA owners who have other resources to pay most of their retirement expenses, the RMDs increase lifetime income taxes.
Other IRA owners need their RMDs to pay living expenses, but they also make charitable contributions from their other funds.
Both groups of IRA owners would increase after-tax income by incorporating QCDs in their annual financial plans.
A QCD converts taxable IRA distributions into tax-free distributions and counts toward the year’s RMD. The QCD often is a smarter way to give than writing a check, even if the contribution by check is fully deductible.
The QCD is the most tax-wise way to make charitable contributions, with the possible exception in some situations of donating highly-appreciated investment assets. The QCD was added to the tax code as a temporary tax break in 2006, but a 2015 law made it a permanent fixture.
You could take a distribution from the IRA and give it to charity. Or you could have the IRA custodian transfer money directly to charity. In either case, the non-QCD distribution is included in gross income and taxed.
There might be a tax deduction for the contribution if you itemize expenses on Schedule A. But few people itemize expenses these days, so most people receive no offsetting tax benefit for the contribution.
It’s a different story when the distribution qualifies as a QCD.
A charitable contribution from a traditional IRA that qualifies as a QCD isn’t included in your gross income. The tradeoff is that you don’t receive a charitable deduction for it.
If you’re taking RMDs from the traditional IRA, the QCD counts toward the RMD for the year. You can take all or part of the RMD without having to include it in gross income to the extent you have QCDs for the year.
An anomaly in the tax code is that QCDs can be made by any traditional IRA owner who is age 70½ or older, but after recent law changes RMDs don’t begin until age 73.
A potential trap is that when you are subject to RMDs, the first distributions from traditional IRAs for the year are considered RMDs and included in gross income.
Some people take distributions from their IRAs early in the year. Later, they learn about QCDs or decide they want to make QCDs. But they can’t reverse those earlier RMDs (except in limited cases within 60 days of the distribution) or turn them into QCDs.
The distributions early in the year are part of their RMDs and must be included in gross income. QCDs can make the rest of the year’s RMD tax free.
Making QCDs early in the year is a good idea when you’re planning to convert all or part of a traditional IRA to a Roth IRA and also have to take an RMD.
The rule is that when you convert IRA assets, you first have to take any RMD for the year. If you take the RMD as a regular distribution, it’s included in gross income. Then, the converted amount also is included in gross income. The RMD effectively adds to the tax cost of the conversion, because you have to take the RMD first.
You must jump through certain hoops to have a distribution qualify as a QCD.
To be a QCD, a charitable contribution must be made directly from the traditional IRA to a charity. The IRA owner can direct the IRA custodian to distribute the money directly to a named charity or charities. An IRA custodian also can give the owner a check made out to the charity for the owner to deliver to the charity.
Some custodians give IRA owners checkbooks. The owners take IRA distributions by writing checks against their IRAs. When a check is made out to a charity, that can qualify as a QCD.
The QCD can exceed your RMD for the year. If your RMD is $10,000, and you want to give $20,000 to charity during year, the entire $20,000 contribution can be made from the IRA as a QCD. But only $10,000 will count as an RMD for the year.
The traditional IRA owner must be at least age 70½ on the date of the transfer from the IRA to the charity. Suppose you turn 70½ in September and had money transferred from the traditional IRA to a charity in March. That’s not a QCD; it will be included in your gross income. You have to be at least 70½ on the date of the contribution for it to qualify as a QCD.
There’s an annual limit per taxpayer (not per IRA) on QCDs that now is adjusted for inflation each year. In 2025, the maximum QCD for the year is $108,000.
In a married couple, each spouse has a separate $108,000 limit, but you can’t share the limits or split the QCDs. If one spouse wants to make more than $108,000 of charitable donations for the year, he or she can’t use part of the other spouse’s QCD limit. If the couple wants to have $216,000 of QCDs, each must donate $108,000 from his or her traditional IRAs.
Even if your RMD for the year exceeds $108,000, you can’t have more than $108,000 of QCDs.
Charitable contributions from a traditional IRA that exceed $108,000 in a year will be non-QCD distributions that are taxable.
Unused portions of the annual limit don’t carry forward to future years. The annual ceiling is a use-it-or-lose-it limit.
Only pre-tax money can be used to make a QCD. That means any nondeductible contributions (after-tax money) in a traditional IRA can’t be used to make QCDs. You can designate that only pre-tax money in the traditional IRA is used to make the QCD and after-tax money stays in the IRA.
In general, QCDs can be made only from traditional IRAs. They can be made from simplified employee pensions (SEPs) and SIMPLE IRAs only when the plan hasn’t received an employer contribution in the plan year that ends with or during the calendar year in which the charitable contribution is to be made. In other words, the SEP or SIMPLE IRA must be inactive.
Other employer plans, including 401(k)s, don’t qualify for QCDs.
Inherited IRAs can be used to make QCDs.
A contribution isn’t a QCD if the IRA owner receives any benefit from the donation. Even a small gift or reward from the charity makes the entire contribution ineligible for a QCD.
Also, you have to follow the basic rules for proving charitable contributions. You must have an acknowledgement in writing from the charity regarding the amount and date of the contribution. For large donations, additional proof might be required.
Only donations to public charities qualify. Contributions to private foundations, donor-advised funds, and tax-exempt groups other than public charities aren’t QCDs.
A contribution from an IRA to fund a charitable gift annuity also doesn’t receive QCD treatment. But for an exception see the new rules for Legacy IRAs.
The SECURE Act permits contributions to traditional IRAs after age 70½. It also prohibits an individual from combining a QCD and deductible IRA contributions made after age 70½.
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