If you are age 73 or older and are required to take Required Minimum Distributions (RMDs), you may want to consider using a Qualified Charitable Distribution (QCD) as part of your charitable and tax planning strategy.
A QCD allows eligible individuals to transfer funds directly from an IRA to a qualified charity. When structured properly, the distribution can satisfy some or all of an RMD while generally excluding the amount from taxable income.
When a QCD may be especially attractive
A QCD may be worth evaluating if a client:
- Is age 70½ or older (minimum age for QCD eligibility)
- Is already taking RMDs (for many taxpayers in 2026, RMD age is 73)
- Does not need all of their RMD for covering living expenses
- Is in a higher marginal income tax bracket
- Is subject to Income-Related Monthly Adjustment Amount (IRMAA) Medicare surcharges
- Has charitable intent
- Has a potentially taxable estate
- Wants to reduce future inherited IRA balances for beneficiaries
Since qualified charitable organizations generally do not pay income tax, 501(c)(3) charities can be ideal recipients of IRA assets.
Depending on a client’s goals, transferring IRA assets directly to charity may allow the client to donate from assets that would otherwise generate ordinary income taxes, while preserving other tax-efficient assets for heirs, especially for those who already intend on making an annual charitable gift.
Comparing the Tax Impact of Two Charitable Giving Strategies
Consider two individuals who are eligible for QCDs and plan to donate $25,000 annually to charity.
Scenario 1: IRA Distribution Followed by a Charitable Gift
- Takes a $25,000 IRA distribution
- Reports $25,000 as taxable income
- Makes a $25,000 charitable contribution
Scenario 2: Qualified Charitable Distribution (QCD)
- Transfers $25,000 directly from the IRA to charity as a QCD
Scenario 2 may achieve the same charitable objective while generally maintaining lower taxable income because the IRA distribution would be excluded from taxable income.
Lower adjusted gross income may also create secondary planning benefits depending on the individual’s circumstances, including:
- Reduced Medicare IRMAA exposure
- Lower taxation of certain income sources
- Reduced future IRA balances passed to heirs
For many affluent retirees, the combination of income tax efficiency, Medicare premium management, charitable giving, and estate planning considerations can make a QCD one of the more effective charitable planning strategies.
Always consult with your tax advisor and financial advisor regarding your individual circumstances before implementing any strategy.
