When you are retired, every dollar matters. And if you are someone who likes to give to charity, there is a smart way to do it that also lowers your taxes. It is called a qualified charitable distribution (QCD), and many experts say it is one of the IRS’s “best-kept secrets” for retirees.
What is a Qualified Charitable Distribution
A qualified charitable distribution is a direct transfer of money from your individual retirement account (IRA) to an eligible charity. The key thing is that the money goes straight from your IRA to the nonprofit, without ever landing in your pocket first.
Here are the main points you need to understand:
- You must be at least 70½ years old to make a QCD.
- In 2025, you can donate up to $108,000 through QCDs.
- If you are married and both spouses are over 70½, each of you can donate up to $108,000.
Because of recent changes in the law, the limit is now adjusted for inflation every year, which gives retirees even more flexibility.
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How does a QCD help with taxes
When you make a normal charitable donation, you usually only get a tax break if you itemize deductions. But here is the problem: most people do not itemize. In fact, the IRS says about 90% of taxpayers claim the standard deduction instead.
That means many retirees who give to charity never actually see a tax benefit from it.
With a QCD, it works differently:
- The amount you donate is not added to your adjusted gross income (AGI).
- Lowering your AGI can help in several ways, like keeping your Medicare premiums from going up or avoiding income-based reductions on other tax breaks.
- Even if you take the standard deduction, you still get the benefit because the money is excluded from income altogether.
As certified financial planner Juan Ros explained, “The amount distributed is excluded from income, which is better than a deduction.”
Can a QCD count toward required minimum distributions
If you are retired, you probably already know about required minimum distributions, or RMDs. Starting at age 73, you must begin withdrawing money from your retirement accounts every year. The amount is based on your account balance and life expectancy, and the IRS does not let you skip it. If you do, you face a penalty.
Here is where QCDs become even more useful:
- Any money you transfer to charity through a QCD counts toward your RMD.
- This means you can satisfy your yearly withdrawal requirement without raising your taxable income.
- For many retirees, this is one of the smartest ways to reduce tax stress while still supporting causes they care about.
Certified financial planner Jim Guarino put it simply: “For my philanthropic clients, it is almost a no-brainer.”
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Who should consider using a QCD
If you are thinking about whether this move makes sense for you, here are some situations where a QCD can be especially powerful:
- You are over 70½ and have an IRA.
- You are required to take RMDs but do not need all of the money for living expenses.
- You give to charity regularly and want to lower your taxes at the same time.
- You do not itemize deductions, so normal charitable contributions do not reduce your taxes.
In short, if you are a retiree who is both charitable and tax-conscious, a QCD could be the perfect tool for you.
