Author: Reema Bounajem, JD
As the end of 2026 approaches, it’s a good time to review charitable giving strategies and any required minimum distributions (RMDs) that still need to be taken from IRAs. For individuals age 70 ½ or older, a Qualified Charitable Distribution (QCD) can be an effective way to accomplish both.
A QCD is a distribution made directly from an IRA to a qualified charitable organization. Unlike a traditional IRA distribution, a QCD is excluded from the account owner’s gross income. This means the distribution can reduce the account owner’s adjusted gross income (AGI), rather than being included and increasing the account owner’s overall tax liability. QCDs also do not require the taxpayer to itemize deductions, which makes it particularly valuable for individuals who would rather take the standard deduction.
QCDs are also a productive way to satisfy required minimum distributions. RMDs are mandatory annual distributions that must be taken from an IRA when the account owner reaches a particular age. If the account owner was born between 1951 through 1959, they must begin annual withdrawals when they reach age 73. When an RMD is distributed to the account owner, it is generally taxable as ordinary income. However, when a QCD is made directly to a charity, that amount is excluded from income while still counting toward the account owner’s RMD for the year.
There are several rules that must be followed in order for a distribution to qualify as a QCD. First, the account owner must be at least 70 ½ at the time of the distribution. The annual limit for QCDs changes each year and is currently $111,000.00 per person. The account owner may direct QCDs to multiple charities, as long as the total amount does not exceed the annual limit. Amounts distributed above the annual QCD limit will be treated as an ordinary taxable IRA distribution, and will not qualify for the income exclusion. Lastly, the QCD must be paid directly to the charitable organization from the IRA account to qualify.
QCDs also can be utilized as a tax-planning strategy for account owners who are not yet required to take RMDs. Reducing the balance of an IRA through charitable giving will reduce the amount of future RMDs, since those are calculated using the IRA balance.
QCDs can be made from Traditional IRAs, IRA Rollovers, and Inherited IRAs. They may also be made from SEP and SIMPLE IRAs, as long as the account is inactive and no longer receiving contributions. QCDs cannot be made directly from employer-sponsored plans like 401(k)s or 403(b) plans. However, an individual can roll these plans into an IRA then subsequently make a QCD. Because the primary tax benefit of QCDs comes from excluding an otherwise taxable distribution from income, QCDs are most beneficial when made with pre-tax dollars. Roth IRA distributions are already tax-free when the applicable requirements are met, so making QCDs from a Roth IRA serves little value.
Recent changes to the tax law make QCDs an even stronger option for charitable giving. Under the One Big Beautiful Bill Act (OBBBA), taxpayers who itemize their deductions can deduct charitable contributions only to the extent that their total charitable contributions exceed .5% of their AGI. Additionally, taxpayers in the 37% tax bracket are subject to a 2/37th reduction on all itemized deductions. QCDs, on the other hand, are not subject to this new rule. Because a qualifying QCD is excluded from income rather than claimed as an itemized charitable deduction, the .5% AGI floor and the new limitation on the tax benefit of itemized deductions do not reduce the amount of the QCD that can be excluded from income.
For individuals who are age 70 ½ or older and charitably inclined, this distinction can make a QCD an important part of their overall charitable giving and retirement income strategy. If you are interested in making a Qualified Charitable Distribution, contact your wealth advisor at Great Plains Trust to discuss whether a QCD may be appropriate for your goals.
