Mile Marker 23
Tax Strategies Series: Qualified Charitable Distributions — How QCDs Reduce Taxes
Presented by Retirement GPS – Navigated by Zynergy
Giving Is the Goal — But How You Give Matters
For many retirees, charitable giving becomes more intentional. Causes feel more personal, and giving back is part of the retirement vision.
But here’s the challenge:
Once you retire, you may no longer itemize deductions. When you take the standard deduction, writing a check to charity often provides little or no tax benefit, even if you give generously every year.
That’s where Qualified Charitable Distributions (QCDs) come in.
QCDs don’t change how much you give — they change where the gift comes from, creating meaningful tax efficiency along the way.
Story: Bill and the Church Giving Plan
Bill had been tithing to his church for years. Before retirement, he itemized deductions and his giving reduced his taxes.
After retiring, things changed:
- He began taking the standard deduction
- His charitable giving no longer reduced taxable income
- Required Minimum Distributions (RMDs) pushed his income higher than he needed
Even though Bill didn’t need the RMD income, it increased his taxes and raised concerns about Medicare premiums.
Instead of taking his RMD into his bank account and then writing a check to the church, Bill redirected that money straight from his IRA to the charity.
The result:
- His RMD was satisfied
- The income never showed up on his tax return
- His giving became 100% tax-efficient
Nothing changed about his generosity — only the strategy.
Qualified Charitable Distributions 101
A Qualified Charitable Distribution allows individuals age 70½ or older to donate directly from a Traditional IRA to a qualified public charity.
Key rules:
- The distribution is excluded from taxable income
- Funds must move directly from the IRA custodian to the charity
- Maximum of $100,000 per person per year
- Applies only to Traditional IRAs (not 401(k)s)
- Available starting at age 70½, even though RMDs begin at 73 or 75, depending on your date of birth.
Because the distribution never becomes income, QCDs are especially valuable for retirees using the standard deduction.
How QCDs Interact with Required Minimum Distributions
Once RMDs begin, withdrawals are mandatory — whether you need the money or not.
QCDs allow you to:
- Satisfy all or part of your RMD
- Keep that distribution out of adjusted gross income (AGI)
Lower AGI can help:
- Reduce total income taxes
- Avoid Medicare IRMAA surcharges
- Limit Social Security taxation
For many retirees, QCDs are one of the cleanest ways to manage RMD-related tax pressure.
Why QCDs Matter in the Standard Deduction Era
Since the increase in the standard deduction, most retirees no longer itemize.
That means:
- Charitable deductions often provide little benefit
- Giving is done with after-tax dollars
QCDs solve this by removing income before it’s taxed, rather than relying on deductions afterward.
What Counts as a Qualified Charity
QCDs must go to:
- IRS-qualified public charities
QCDs cannot be made to:
- Donor-advised funds
- Private foundations
- Individuals or non-qualified organizations
Confirming eligibility is essential to preserving the tax benefit.
Benefits of Using a QCD
When used correctly, QCDs can:
- Reduce taxable income
- Satisfy RMDs efficiently
- Help manage tax brackets
- Lower Medicare premiums
- Support charitable causes with pre-tax dollars
It’s one of the few retirement strategies that directly aligns generosity with tax planning.
When a QCD Makes Sense
QCDs are often a strong fit when:
- You’re age 70½ or older
- You’re charitably inclined
- RMDs exceed your spending needs
- You take the standard deduction
- Lowering AGI has planning value
Action Steps
To use QCDs intentionally:
- Confirm age and account eligibility
- Review your RMD amount and giving goals
- Identify qualified charities
- Coordinate execution through your IRA custodian
- Confirm proper reporting with your advisor and tax professional
Closing Thought
Qualified Charitable Distributions don’t change your generosity — they improve its efficiency.
For retirees who give consistently, a QCD can turn a required withdrawal into a purposeful, tax-smart strategy that benefits both the causes you care about and your overall retirement plan.