QCD Tax Rules That Individuals Should Be Aware Of

Although many individuals think of December as the best month for charitable giving in order to save on current year taxes, January and February should be the time to start the planning process for maximizing annual charitable giving. Perhaps one of the best ways to maximize annual tax benefits associated with charitable giving is by using qualified charitable distributions (QCDs).

What is a QCD?

A QCD allows an IRA owner (and an IRA beneficiary) aged 70.5 or older to make charitable donations directly through their IRAs. In particular, IRA funds are transferred directly from the IRA to a qualified charitable organization. Most importantly, the funds withdrawn and transferred from the traditional IRA are not taxable. Normally, when a withdrawal is made from a traditional IRA, the withdrawal is considered a taxable event.

For most senior citizens over age 70, the QCD provides a tax benefit that could otherwise be lost. This is because most senior citizens no longer itemize on their federal income tax returns (they do not file Schedule A and therefore cannot deduct their charitable contributions) on their federal income tax returns. Instead, they take the standard deduction. For the year 2025, the standard deduction for married senior citizens over age 65 is $33,200 ($30,000 base amount plus the additional standard deduction of $1,600 for each spouse over age 65). The standard deduction for single individuals over age 65 during 2025 is $17,000 ($15,000 base amount plus the additional standard deduction of $2,000).

While using the standard deduction will not provide a charitable deduction, the QCD will provide an overall better tax benefit because a QCD is an “exclusion from income” that reduces an individual’s adjusted gross income (AGI). This is important because an individual’s AGI is an important number on an individual’s federal (and in most states) state income tax returns in which many tax credits, tax deductions and other tax benefits are based. The following are examples of tax benefits resulting from QCDs:

• As discussed below, QCDs can offset required minimum distributions (RMDs).
• Since QCDs lower an individual’s AGI, the amount of the individual’s medical expenses that can be deducted could increase. The medical expense deduction is limited to the medical expenses that exceed 7.5 percent of the individual’s AGI.
• Since QCDs lower an individual’s AGI, QCDs can lower Medicare Part B Income-Related Monthly Adjustment Amount (IRMAA) surcharges.
• QCDs can benefit those individuals who may have their charitable contribution deductions limited because of their taking the standard deduction, and
• QCDs can help reduce the value of traditional taxable IRA funds being left to heirs. This is because most non-spousal beneficiaries have to withdraw and pay income tax on the inherited traditional funds. It makes better sense to perform charitable giving with taxable IRA funds via QCDs in which the IRA funds are withdrawn income-tax free.

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Traditional IRA RMD Offset Benefit

For those individuals who have reached their required beginning date (currently age 73) and therefore are subject to traditional required minimum distributions (RMDs), the QCD can offset the RMD income, but only if the QCD and RMD are taken in the correct chronological order. That is why January and February are the best times for traditional IRA owners who are subject to RMDs to take their traditional IRA RMDs early in the calendar year.

The reason that it is important for individuals subject to IRA RMDs to take their QCD early in the year is because if a traditional IRA RMD for the year has already been taken, then a QCD performed after that cannot offset the RMD income. The following examples illustrate the right way and the wrong way to accomplish the RMD offset.

Example 1. (The right way to make a QCD). Peter, age 75, has a 2025 traditional IRA RMD in the amount of $12,500. Peter also wants to make $25,000 in charitable cash donations to his houses of worship. If Peter first makes the QCD of $25,000 during 2025, then his traditional IRA RMD is satisfied for 2025 and a separate RMD does not have to be taken. The result is a total IRA distribution of $25,000, all of which is tax-free and satisfies Peter’s traditional IRA RMD for the year 2025.

Example 2.  (The wrong way to make a QCD).  Alice, age 76, has a traditional IRA RMD of $5,600 during 2025. Alice also wants to make a $10,000 charitable contribution during 2025. If Alice takes the $5,600 RMD early in 2025 before making her charitable contributions using the QCD, then any QCD taken after the RMD was taken cannot offset her RMD income. If Alice donates the $10,000 after she has already taken her RMD, then the $10,000 is still considered a QCD (and is still a tax-free distribution from her traditional IRA). But the result is a $15,600 total traditional IRA distribution for 2025 of which $5,600 is taxable.

Eight QCD Tax Rules Individuals Should Be Aware Of:

1. QCDs are available only to IRA owners aged 70.5 and older. For 2025, QCDs are capped at $108,000 per IRA owner, not per IRA account.
2. QCDs apply to traditional IRAs, Roth IRAs, and inactive SEP and SIMPLE IRAs. QCDs do not apply to distributions from employer-sponsored retirement plans including the Thrift Savings Plan (TSP).
3. QCDs apply practically to taxable accounts. While Roth IRAs can be used for a QCD, practically speaking it makes no sense to use Roth IRAs to make QCDs because the Roth IRA funds have already been taxed.
4. QCDs apply only to direct transfers of IRA funds to charities, not gifts made to private grant-making foundations or donor advised funds.
5. The contributions to a charitable organization via the QCD would have to be entirely deductible if it were not made from an IRA. There can be no benefit paid back to the IRA owner by the qualified charitable organization.
6. During 2025, an individual can make maximum QCDs of $108,000. If more than $108,000 is withdrawn from an individual’s IRA(s) and contributed to qualified charities, there is no carryover to a future year. The excess QCD is considered taxable income. However, the excess QCD is considered a charitable deduction and therefore can be claimed by the IRA owner as a charitable deduction if the IRA owner itemizes on his or her federal income tax return.
7. The charitable substantiation requirements apply to a QCD. The traditional IRA owner who makes a QCD must have a contemporaneous written acknowledgement (CWA). A CWA is a receipt that shows that the charitable donor received no benefit from the charity as a result of the charitable contribution.
8. A QCD could become taxable if the individual making the QCD also makes during the same tax year a deductible traditional IRA contribution. The individual is therefore advised to make instead a Roth IRA contribution.

Federal employees and retirees who have additional problems or questions concerning QCDs and taxes are advised to contact a qualified tax professional.

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert

A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.

He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.