A Smart Tax Move for Charitable Giving

If you have money in a traditional IRA and regularly give to charity, there's a little-known tax strategy that could save you money while supporting causes you care about.

As you know, normally every dollar you withdraw from a traditional retirement account is taxed at your ordinary income tax rate. But once you reach age 70½, you can donate money directly from your traditional IRA to charity—and that donation won't count as taxable income. This is called a Qualified Charitable Distribution (QCD).

For example, let’s say you have $70,000 in taxable income and you make a $5,000 withdrawal from a traditional IRA. That $5,000 withdrawal is taxable income, so your taxable income is now $75,000.

But if you were to send $5,000 from that IRA to a charity via a QCD, the $5,000 will not be counted as taxable income. In this example, even though you effectively withdrew (distributed) $5,000 from your traditional IRA, it doesn’t get added to your other taxable income.

And there’s an added tax bonus to QCDs once you reach the age where you must make required minimum distributions (RMDs) from your traditional accounts. (Right now, RMDs are required once you turn 73; for anyone born in 1960 or later, your RMD age will be 75.)

Any money you use in a traditional account to make a QCD is counted toward your RMD for the year, and that money will not be reported as taxable income.

For example, let’s say your RMD is $50,000. Normally, that $50,000 required withdrawal would be added to your taxable income for the year. But let's also say you don't need the money from the RMD, and you make a $50,000 QCD from your IRA, that $50,000 isn’t treated as taxable income. So you just reduced your taxable RMD from $50,000 to $0. And you helped others, too.

In 2025, each individual can make up to $108,000 in QCDs. That limit is adjusted annually for inflation.

A QCD can also help those of you facing large RMD requirements, because you were such good savers. Assuming you don’t need all of your RMD to cover your living costs, making QCDs from your IRA effectively reduces the balance in that retirement account, which means your RMD falls as well.

One important rule to keep in mind is that a QCD can only be done from a traditional IRA. You can’t make a QCD from a 401(k) or other traditional retirement account. But once savings are rolled over from a 401(k) to an IRA, you can then take advantage of the QCD tax break.

If you are interested in QCDs, be aware that the money must be sent directly from your IRA provider to the charity. You are never to withdraw the money and then send it to the charity. The firm where you have your IRA account will have directions on how to make a QCD.