QCDs: The Tax-Smart Way to Give

Written by John Macy, Financial Coach, MBA, Retirement Income Certified Professional® (RICP)

How to Use Qualified Charitable Distributions to Satisfy Your RMDs While Supporting Your Favorite Causes

Executive Summary

Quick Facts for 2026:

• Eligibility: Age 70 ½ or older

• 2026 Limit: $111,000 per individual

• Main Benefit: Satisfies RMDs tax-free and lowers Adjusted Gross Income (AGI)

• Requirement: Funds must move directly from IRA to a 501(c)(3) charity

  
  

Understanding the Tax Trap

As we transition into the later stages of retirement planning, many of us find ourselves in a bit of a "tax trap." We may have spent decades diligently saving into a Traditional IRA. Now, in our 70s, we face the IRS mandate to withdraw significant amounts each year. This requirement can feel overwhelming, especially when our IRA or 401(k) balances exceed $1 million.

These mandatory withdrawals, known as Required Minimum Distributions (RMDs), are classified as ordinary taxable income. They can spike our taxable income, potentially pushing us into a higher tax bracket or increasing Medicare IRMAA premiums. For instance, a 75-year-old named "Jack" with a $2 million IRA/401(k) balance would face RMDs of about $81,000. By age 80, Jack's RMD would rise to approximately $99,000. When traditional IRA distributions begin to automatically hit your tax return, they don't just increase your income tax—they can also inadvertently trigger the taxation of your hard-earned Social Security benefits. Coordinating these distributions with a customized Social Security claiming strategy is essential to protect your net cash flow.

But what if there was a way to satisfy that IRS RMD requirement, support a cause we love, and keep our taxable income lower? If we are charitably inclined, the Qualified Charitable Distribution (QCD) can be a game changer. This strategy can make RMDs and their associated taxes a much smaller problem, even for those with IRA balances of $1-3 million.

What is a QCD?

A Qualified Charitable Distribution is a direct transfer of funds from our IRA custodian (think Vanguard, Fidelity, Schwab, Merrill Lynch, Morgan Stanley, TIAA, etc.) to an IRS-registered 501(c)(3) charity. The money never touches our bank account. Because it goes directly to the charity, the IRS does not count the distribution as taxable income. However, the amount we give still counts toward satisfying our RMD for the year.

Why Use a QCD? (The "Tax-Smart" Benefits)

Many assume that donating to charity always results in a tax break. However, since the standard deduction was significantly increased a few years ago, many retirees no longer "itemize" their deductions. For a married couple over 65, their standard deduction in 2026 is $35,500 (not including the temporary $12,000 in bonus senior deductions). This means their $5,000 or $10,000 charitable gifts often provide no federal tax benefit at all. Even a $50,000 gift to charity might result in minimal tax reduction due to the high standard deduction.

How Do QCDs Change the Game?

1. Lower Adjusted Gross Income (AGI): A QCD is excluded from our income, lowering our AGI. This is "above-the-line" tax planning. A lower AGI can help us avoid the "High Income" IRMAA surcharges on Medicare Part B and D and may reduce the percentage of our Social Security benefits that are subject to tax.

2. No Itemization Required: We receive the tax benefit of the donation even if we take the standard deduction. Note: If we itemize, we cannot include QCDs as an itemized deduction — that would be double-dipping on tax deductions.

3. The "Efficiency" Factor: If we take an RMD as a deposit to our bank account, pay taxes on it, and then give the remainder to charity, the charity gets less. With a QCD, the charity receives 100% of the gift, and we pay 0% in taxes.

   
   

Who Should Use a QCD?

QCDs may not make sense for someone who only gives a couple of hundred dollars to charities each year. However, for those with moderate to high IRA balances who give significant amounts to charity, it can be highly advantageous to give directly from a traditional IRA rather than from a checking account or appreciated stock.

Typical Characteristics Favoring QCDs:

• Over age 70½ (this is a requirement)

• Have income sources pushing them into the 22% or higher tax brackets

• Regularly give $5,000 or more to charity

• Have IRA (or 401(k)/403(b)) balances over $500,000

  
  

Generally, the higher our IRA balances and the greater our gifts to charity, the more likely QCDs will benefit us.

Example: Consider Jack, who is 75 years old with a $2 million IRA balance. If Jack is in the 22% tax bracket and withdraws the $81,000 RMD into his bank account, he would owe about $17,800 in additional federal taxes. The RMD may also push him over an IRMAA premium "cliff," resulting in higher premiums on his Medicare Parts B and D. However, if Jack gives $50,000 to charity through a QCD and takes the remaining $31,000 as an RMD, he will only owe about $6,800 in federal taxes. This results in a savings of about $11,000 in taxes, plus potential additional savings in IRMAA premiums and state taxes.

When Can You Use a QCD?

Prior to 2020, the RMD age and the minimum QCD age were both 70½. However, in 2020, the RMD age was increased to 72, then to 73, and in a few years, it will increase to 75. Fortunately, the QCD age remained the same. This creates an "age gap" in the rules that is important to understand:

• Age 70½: We can start making QCDs as soon as we hit 70½ (even though RMDs are not yet required for many).

• Age 73 (or 75): Under current law (SECURE Act 2.0 of 2022, Public Law No. 117-328), RMDs generally start at age 73. Starting in 2033, for those born in 1960 or later, the RMD age increases to 75.

  
  

This means we can actually start using QCDs to reduce the size of our IRA before our RMDs even kick in, effectively lowering our future tax liability.

The Limits: The IRS 2026 QCD limit is $111,000 per person (indexed annually for inflation). If we are married, we and our spouse can each give up to that limit from our respective IRAs, for a total of up to $222,000 — half must come from each person's IRA.

How Do You Execute a QCD?

Using a QCD is relatively simple, but the "mechanics" must be handled precisely to ensure proper tax treatment.

1. Verify the Charity: Ensure the organization is a qualified 501(c)(3) public charity. Note that Private Foundations and Donor-Advised Funds (DAFs) generally do not qualify for QCDs.

2. Direct Transfer is Key: We cannot deposit the money into our personal checking account and then write a check to the charity. We must instruct our IRA custodian (e.g., Fidelity, Schwab, Vanguard) to issue a check directly to the organization. Depending on our custodian, the check may be mailed to us (but with the charity as the payee). In this case, do NOT deposit the check into our account — just send it on to the charity.

3. Do the QCD Distribution First: The IRS follows a "First Dollars Out" rule, meaning the first dollars distributed from an IRA in a year satisfy the RMD for that year. It is best to do the QCD distribution early in the year to satisfy our RMD requirement on a tax-free basis. Then we can choose whether to withdraw any additional amounts from our IRA, depending on how we manage our taxes and what other sources of income we have.

4. Get a Receipt: Just like any gift, we need a written gift acknowledgment from the charity to keep with our tax records.

5. Reporting on Our Taxes: Our IRA custodian will send us a Form 1099-R at the end of the year. Interestingly, that form often doesn't distinguish between a regular RMD and a QCD. We (or our tax preparer) must report the total distribution on line 4a of our Form 1040, and then enter the taxable amount (which might be $0) on line 4b, writing "QCD" next to it. For example, if we withdrew $30,000 from our IRA, of which $20,000 was a QCD and $10,000 was a taxable distribution, we would write "$30,000" on line 4a and "$10,000 QCD" on line 4b.

6. Only From an IRA: We cannot do QCDs from 401(k)s or 403(b) accounts, only traditional IRAs (directly funded, rollover, inherited, SEP/SIMPLE). If we want to do QCDs from a 401(k) or 403(b) account, we must first roll over those accounts to a traditional IRA and then do the QCD from the IRA.

   
   

Is a QCD Right for You?

If we are over 70½, have more money in our IRA than we need for daily expenses, and are already supporting a church, alma mater, or other nonprofit with significant gifts, the QCD is likely the most tax-efficient way for us to give. QCDs can be done in combination with Roth conversions (or instead of Roth conversions) to minimize the tax impact of RMDs. See the blog post on "Roth Conversions - Not the Best Solution for Many Households" to read more about how QCDs can substitute for Roth conversions and reduce our taxes.

Summary

Feature	Regular RMD Withdrawal	Qualified Charitable Distribution (QCD)
Tax Treatment	Taxed as Ordinary Income	100% Tax-Free
Impact on AGI	Increases AGI (May trigger IRMAA Medicare Part B & D surcharges)	Does not increase AGI
Charity Benefit	Charity receives "after-tax" amount	Charity receives 100% of gross gift
Best For	Personal living expenses	Fulfilling charitable goals + RMDs

At Flourishing Path Financial, we specialize in helping you align your heart for giving with a strategy that protects your hard-earned savings. If you’re ready to see how a QCD fits into your broader financial plan, let’s start a conversation. Contact me or visit www.flourishingpathfinancial.com/book-online to schedule a free Discovery Session.

Author: John Macy, MBA, RICP®

John Macy is a professional financial coach and the founder of FlourishingPath Financial Coaching. With over six years of experience as a financial coach, John helps pre-retirees and retirees design resilient portfolios and income streams for their next act. Read his full story here.