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For many retirees, the holiday season is the perfect time to give back. And there’s one IRS-approved trick that can make that generosity go even further.
A qualified charitable distribution, or QCD, is a direct donation from your IRA that can shrink your tax bill while helping your favorite charity.
“It’s one of the IRS’ best-kept secrets for retirees,” Ashton Lawrence, a certified financial planner at Mariner Wealth Advisors in Greenville, South Carolina, told CNBC (1).
So what exactly is a QCD and how does it work?
A qualified charitable distribution is a direct transfer from your pretax IRA to a qualified charity. Instead of withdrawing the money and then donating it, which counts as taxable income because it impacts your adjusted gross income (AGI), you send it straight from your IRA and keep it off your tax return entirely.
According to Fidelity, QCDs are most optimal for retirees who are 70½ or older and taking required minimum distributions (RMDs), who don’t itemize deductions and have IRA balances that are typically mid–six figures or higher. Retirees with smaller IRAs can still benefit, but the tax impact may be less dramatic (2).
For 2025, retirees aged 70½ or older can donate up to $108,000 this way, according to the IRS (3). Married couples can each give up to that limit if both spouses qualify. Thanks to the Secure Act 2.0, that cap now adjusts for inflation every year.
The majority of Americans, 91% of filers, according to the IRS, take the standard deduction instead of itemizing (4). While some chose not to itemize because it legitimately yields a larger deduction, others opt for this route because it tends to be easier. That means their regular charitable donations don’t actually lower their taxable income.
QCDs are different.
There’s no deduction because the money is simply excluded from income, which is “better than a deduction,” according to Juan Ros, CFP and partner at Forum Financial Management in Thousand Oaks, California (1).
If you’re 73 or older, you have to start taking required minimum distributions (RMDs) from your pretax retirement accounts, whether you need the cash or not. Skip it, and the IRS hits you with a penalty.
A QCD lets you donate part or all of your RMD directly to charity, fulfilling the requirement while avoiding the tax hit.
“For my philanthropic clients, it’s almost a no-brainer,” added Jim Guarino, CFP and managing director at Baker Newman Noyes in Woburn, Massachusetts (1).
While QCDs can help reduce your tax bill as well as reduce your RMDs, figuring out the exact amount can be challenging. But a financial advisor can help you work out the math.
You can find an experienced financial advisor near you for free through Advisor.com. Their network comprises fiduciaries — who are legally obligated to act in your best interests — so you can trust the advice you’re getting is unbiased.
What’s more, advisors on the platform go through a rigorous vetting process based on track record, assets under management (AUM), client ratios, and regulatory background.
Here’s how to get started: Just enter some basic information about your financial situation and goals, then Advisor.com’s AI-powered advisor matching technology will match you with the best fit.
And for households looking for more personalized help, the Advisor Wealth Management (AWM) platform blends AI-powered tools with hands-on support from experts to keep your plan on track.
But choosing an advisor still comes down to personal connection. That’s why Advisor.com lets you set up a free initial consultation with no obligation to hire to see whether they’re the right fit for you.
To make a QCD, you’ll need an IRA, but what if your retirement funds are still in a 401(k) or another plan?
You’ll have to roll it over into a traditional IRA. Most 401(k)s and employer plans allow transfers to IRAs, which then become QCD-eligible. Once the funds are in the IRA, you can instruct the custodian to send the donation directly to a qualified 501(c)(3) charity, which keeps the money out of your taxable income.
Keep in mind that timing matters. IRS rules generally require rollovers to be completed within 60 days to avoid penalties. Donor-advised funds and private foundations don’t qualify, so double-check the charity before transferring.
By moving your 401(k) or other retirement savings into an IRA first, you could unlock the full tax benefits of QCDs even if you didn’t start with an eligible account.
Key things to remember:
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You have to be at least 70½ when the donation leaves your IRA — keep in mind SEP and SIMPLE IRAs aren’t eligible. (5)
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Tell your IRA custodian to send the money directly to the charity and not to you.
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Verify the organization is a qualified 501(c)(3) as donor-advised funds and private foundations don’t count.
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Keep all your receipts and records.
Federally, QCDs are excluded from income, but tax treatment can vary by state. Some states conform fully to IRS rules, while others don’t. Before you move money, double-check with your state’s Department of Revenue or a tax professional.
For retirees who want to give generously and cut their tax bill, QCDs could be a win-win. With a single move, you can satisfy RMDs, keep your income lower, and support causes you care about.
While QCDs are an excellent way to give back, understanding how they impact your finances, especially in retirement, is crucial.
High-net-worth individuals can get proactive advice across their entire financial life — from investing and taxes to estate planning — through Range.
You can get professional advice 24/7 from experts at a fraction of the cost of traditional Certified Financial Planners (CFPs). Range offers 0% AUM fees for advisory services and a flat-fee structure so that you can preserve more of your wealth.
They also offer an all-in-one solution for everything from alternative asset management to taxes — all of which is informed by modern AI solutions, but backed by a team of certified financial professionals.
What’s more, you can get a custom cash flow analysis — helping you work out how much of your disposable income you could allocate towards qualified charitable distributions without impacting your lifestyle.
The best part? You can book a complimentary demo with the experts at Range to see if they can meet your comprehensive financial needs.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
CNBC (1); Fidelity Charitable (2); IRS (3, 5); Tax Policy Center (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
