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QCDs, A Powerful Tool for Charitably-Inclined Retirees

Families are changing the way they donate money to charity. With the standard deduction rising to $24,000 (tax year 2018) for married filers under the Tax Cuts and Jobs Act, many married couples can’t take advantage of itemizing deductions on their taxes.

This change means that dedicated donors need to alter their giving strategy in order to receive tax benefits for their gifts. Retirees have an interesting opportunity that other people do not—donating money from their required minimum distributions (RMDs) to a qualified charity.

RMDs are mandated by the IRS and stipulate that once the account owner turns 70 ½, they need to withdraw a certain amount from the necessary accounts before December 31 each year.

Designating some or all of your RMDs for charitable purposes can be done through a process called Qualified Charitable Distributions (QCDs). What are QCDs and how can they help retirees maintain their charitable efforts? I am excited to explore the answers and more with you today. 


A Qualified Charitable Distribution is a direct payment from an IRA custodian to a qualified public charity. This strategy allows retirees to donate money directly from their IRA to the charity of their choice, allowing them to be both tax-efficient and charitably-inclined. 

There is a $100,000 limit on QCDs from a single account. This means that technically, a married couple could donate $200,000 through a QCD per year if they each made the $100,000 transaction from their own, separate accounts. 

Retirees who donate their RMDs to charity through this process will see numerous tax benefits, particularly in their tax bracket. RMDs are mandatory on all tax-deferred accounts such as a 401(k) or traditional IRA. Since you didn’t pay taxes on the money you contributed, the distributions will be taxed at your ordinary-income rate. By donating the money to charity, through a QCD, you will not need to pay income tax on the money, reducing your overall taxable income and increasing the amount of your gift. 

It is important to note that you don’t have to donate your entire RMD to charity. Most retirees need their RMD to supplement living expenses in retirement and only donate a portion of it. Say, for example, your RMD is $6,000. You may need to keep $4,000 for your expenses and donate the remaining $2,000 through a QCD. Remember, you will need to pay income tax on the $4,000 you keep for your own use. 

If you are using a QCD in place of your annual RMD, it is important to know that should you take more money out of your account than you are required to, those funds can’t be rolled over to the next year. Each year has a separate RMD. 

QCD requirements

A Qualified Charitable Distribution can only be made from a Traditional IRA. While in certain circumstances a Roth IRA can be used, be sure to focus on the Traditional IRA for charitable gifts.

In order for a QCD to work and to gain the tax benefits from it, the transaction has to occur directly from the IRA custodian to the charity of choice. Should you withdraw the money yourself and donate it after the fact, you will need to pay income tax on the money and shift your gift accordingly. Most IRA custodians will make the transfer directly, but some may send you a check. If this happens, don’t worry, you will simply give the check to the charity yourself. 

It is also important to know that not all charities qualify for a QCD. In order for the transaction to work the charity has to be a 501(c)(3) organization eligible to receive tax-deductible contributions. There are three types of charitable giving that don’t qualify:

  • Donor-advised funds

  • Private foundations

  • Supporting organizations

Take some time to check on the status of the charity of your choice before you start the process. 

Why QCDs are tax-efficient

Using QCDs is a great way to be tax-efficient in retirement, particularly because you aren’t required to itemize the contributions. This allows you to retain tax benefits even with the new tax law. You will need to make sure your IRA custodian sends you 1099 that clearly states a QCD transaction occurred for your tax-planning purposes. 

Along this same line, since you receive a tax break from the QCD transaction, you can’t also itemize the QCD as a charitable deduction on your taxes. Be sure to check with your financial advisor and tax professional to make sure everything is in order.

QCDs can help you reduce your taxable income for the year which can be especially important for retirees. 

Giving strategy in retirement

Many retirees want to maintain their charitable efforts, but don’t know where to start. QCDs are an excellent tool because they allow you to create a planned giving strategy in retirement. You are able to build-in a giving plan into your retirement budget which will help you be more consistent in your charitable efforts. 

QCDs are a great resource because they allow retirees to give and not have it just be from their estate plan. While it is wonderful to include charitable efforts into your estate plan, your giving doesn’t have to take a break while you are in retirement. 

This strategy also allows retirees to give from investments as opposed to cash. A cash reserve is important to retirees and when that cash number dips too low, it can cause a lot of stress and anxiety. With a QCD, retirees don’t have to dip into their cash fund to donate. They can do it through their investment instead which offers a stronger sense of stability since they aren’t digging into their cash reserves.  

Charitable giving is a wonderful part of your life, so why should it stop in retirement? There are so many avenues for retirees to continue their generosity into their golden years and here at Step by Step, we want to do what we can to make it happen. Give us a call because we would love to talk to you about the best way for you to give to charity in retirement.