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Using QCDs to Reduce the Tax Impact of RMDs

Using QCDs to Reduce the Tax Impact of RMDs

February 26, 2024

This is an updated version of an article originally published in 2021.

There are various charitable giving options that you can use to support your favorite causes. But if you’re already taking Required Minimum Distributions (RMDs) from your IRA right now--or you're turning 73 this year and have to start taking RMDs--you have another way to give. 

Qualified Charitable Distributions: Tax reductions without quirky deductions

A Qualified Charitable Distribution (QCD) is a direct donation made from a Traditional IRA to an eligible nonprofit organization. You can make several QCDs to different charities every year, up to a maximum combined amount of $105,000 (in 2024) across all of your IRA accounts.  

Unlike RMDs, QCDs don’t count toward your annual taxable income. Even better, the total QCD amount may offset some or all of your annual RMD.

For example, if your RMD for 2024 is $40,000 and you make a QCD of $40,000 or more to charity, your RMD requirement will be satisfied and the QCD itself will not be counted toward your taxable income for the year.

Note: You don't have to be taking RMDs to make QCDs. You can start making them at age 70½, up to the annual limit. You might utilize this strategy if you want to reduce the overall value of your IRA before you have to start taking RMDs. 

To use QCDs to reduce current (and potentially future) RMDs....

You must meet the following criteria:

  • To make a QCD, you must either be taking RMDs right now or turning 73 (the age you need to start taking RMDs) this year.  
  • To count toward your RMD, you must make the QCD donation before your annual RMD is taken from your IRA. 
  • QCDs can only be donated to qualified 501(c)(3) charities.
  • The QCD check(s) must be made out directly to the charity.
  • QCDs cannot be used as donations to donor-advised funds or family foundations.

The $105,000 annual limit is per individual, not account. This means if you have several IRAs, the aggregated amount you can use as QCDs across all your IRAs is $105,000. However, if you’re married and you and your spouse have separate IRAs, you each can contribute up to $105,000 per year—for a total of $210,000 per couple.

One issue to consider: QCDs are not tax-deductible, so if you normally itemize charitable deductions you’ll have to count donations from other sources.

Even more benefits for Traditional and Roth IRA owners

When you have both a Traditional IRA and Roth IRA, QCDs can help you achieve your retirement income and philanthropic objectives with greater flexibility and tax-efficiency.

For example, you could use QCDs from your Traditional IRA to contribute directly to charities and reduce taxable RMD income while using tax-free Roth IRA or 401(k) distributions to make additional contributions to donor-advised funds and other charitable giving vehicles that can’t be funded with QCDs. Note: Roth distributions are tax-free only after you turn age 59½ and have owned the account for at least five years. 

Assuming you’re able to itemize charitable deductions, combining contributions made from Roth distributions with the RMD-reducing benefits of QCDs could lower your net taxable income.

Special one-time QCD to charitable split-interest trusts

The SECURE Act 2.0, enacted in 2023, allows you to make a one-time QCD of up to (for 2024) $53,000 to a split-interest charitable trust, such as a charitable remainder annuity trust (CRAT), charitable remainder unitrust (CRUT), or charitable gift annuity. These trusts make ordinary interest income payments to designated beneficiaries over a certain time period, with the remaining interest distributed to one or more qualified charities after the period ends (often after the death of the grantor). 

Note that this special QCD would be considered part of your annual QCD limit. In other words, the total combined value of a one-time QCD to a split-interest charitable trust and other QCDs to charities cannot exceed $105,000 (in 2024). 

What about 401(k) plans?

Unfortunately, you can’t make QCDs from a 401(k) or other employer-sponsored retirement plan. If you want to take advantage of QCDs, rolling over your 401(k) plan to a Traditional IRA might be an option, although you'll want to weigh all of the potential pros and cons of this strategy first. A financial advisor can help you evaluate your options.

Caveat: It’s not as easy as it looks

There are some catches to using QCDs. They must be made from taxable distributions. Generally, this means you can only use taxable earnings and basis (i.e. non-deductible contributions and rollover funds). You can't use after-tax contributions.  The one exception is that you can make QCDs from a Roth IRA's after-tax contributions and tax-free earnings if you have not owned the Roth for at least five years. 

When it comes to calculating taxable distributions or QCDs, the IRS requires you to treat all Traditional IRAs you own as a single aggregated account. And the rules specifying the order of IRA contributions and earnings that must be used for withdrawals can be complicated.

That’s why before you make any major decisions regarding QCDs or any other retirement account distributions, you should consult your accountant or financial advisor to make sure your actions won’t result in unintended tax consequences or throw a wrench into your retirement plans.

This article offers general information and should not be viewed as personalized tax or legal advice. Although we strive to make this information is accurate and useful, you should consult with a tax professional or lawyer before implementing any tax-related actions.


This article was authored by Chris Gullotti and Jeffrey Briskin. Chris is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or  Jeffrey Briskin is Director of Marketing at Canby Financial Advisors. 


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