Tax-Efficient Giving: Qualified Charitable Distributions (QCDs)
Jeremy Keil explains how to utilize Qualified Charitable Distributions (QCDs) to lower your taxes in retirement and maximize the impact of your giving.
When you retire, you’re likely to start pulling money from a wider array of sources than you’re used to — and with that often comes a change in how much you pay in taxes. But there’s one area I see retirees accidentally overpay all the time: giving to charity the wrong way.
That’s where Qualified Charitable Distributions (QCDs) come into play — a simple but powerful tax strategy that can help you give more efficiently, reduce your taxable income, and even lower your Required Minimum Distributions (RMDs) in the future.
If you’re charitably inclined or already making regular giving part of your retirement plan, QCDs can be one of the most valuable tools available.
Why Giving to Charity the “Normal Way” Can Cost You More
Giving money to charity from your IRA seems simple. Take out $10,000, give it away, and assume the tax deduction cancels out the income. But that’s not how the tax code works for most retirees.
Since the 2017 Tax Cuts and Jobs Act, the standard deduction is nearly double what it used to be. Most retirees don’t itemize anymore. That means even if you give to charity, you often don’t get a deduction at all.
So taking money out of your IRA increases your taxable income — but you receive no offsetting deduction.
That extra income affects everything:
- The taxability of your Social Security
- Your Medicare IRMAA brackets
- The deductions you’re eligible for
- Your overall tax bill
This is why giving through a QCD is such a powerful tool.
How a QCD Works (and Why It’s Tax-Free)
A Qualified Charitable Distribution lets you send money directly from your traditional IRA to a charity. When done correctly, that distribution:
- Does not show up as income
- Counts toward your RMD (if you’re 73+)
- Reduces the size of your IRA and future RMDs
- Creates no taxes at all — even if you don’t itemize
It’s one of the only ways in the tax code to remove IRA money completely tax-free.
And here’s the best part: you can start QCDs as soon as you hit age 70½, even though RMDs don’t begin until age 73 (or 75 for those born 1960 or later).
The 2025 QCD Maximum: What’s New?
For 2025, the QCD limit is $108,000 per person, per year.
This is not a lifetime limit — it resets every January 1st.
That means:
- You can give up to $108,000 this year
- Your spouse can also give $108,000
- Next year the limit resets again
These gifts must come from traditional IRAs only. QCDs are not available from 401(k)s, 403(b)s, SIMPLE IRAs, or SEP IRAs (unless inactive).
A Real-World Example: The Couple Who Missed a $2,000 Tax Break
I recently worked with a couple who were taking their entire RMD in January and then giving the same amount to charity at the end of the year. Because they no longer itemized, those charitable gifts gave them no tax benefit whatsoever.
Once they switched their giving to QCDs — sending the money directly from their IRA to the charity — their projected taxes for the next year dropped by more than $2,000.
They didn’t give any more money.
They didn’t change anything about their income.
They didn’t adjust their investments.
They simply used the tax code correctly.
The Big Tax Mistake to Avoid
There’s one major issue retirees run into — and it happens every spring. QCDs do not appear separately on your 1099-R. They’re lumped in with all other distributions.
If your tax preparer doesn’t know you made QCDs, they may accidentally count the full amount as taxable income. I’ve seen retirees lose thousands this way.
You must:
✓ Keep the receipts and proof of every QCD
✓ Tell your tax preparer before they file
✓ Review your return to ensure the QCDs were properly excluded
A QCD is only tax-free if you document it.
Give Wisely. Reduce RMDs. Lower Your Taxes.
QCDs offer something rare in the retirement tax world: a true win-win. You support the causes you care about most, and you reduce your tax burden at the same time.
Whether you’re giving $1,000 or $108,000, this strategy can make a difference — especially over the long run.
About the Author:
Jeremy Keil, CFP®, CFA® is a financial advisor in Milwaukee, WI, author of the bestseller Retire Today: Create Your Retirement Master Plan in 5 Simple Steps and host of both the Retire Today Podcast and Mr. Retirement YouTube channel
Links:
- Buy Jeremy’s book – Retire Today: Create Your Retirement Master Plan in 5 Simple Steps
- Learn how to build your retirement masterplan plan at FiveStepRetirementPlan.com
- Work with my team to get more income, pay less in taxes, and avoid big retirement mistakes: KeilFP.com
- The Tax Cuts and Jobs Act – IRS.gov
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