For philanthropic retirement account owners there is a tax saving strategy that may be considered. Withdrawals from pre-tax IRAs are generally treated as taxable income. Qualified Charitable Distributions (QCD) allow for an IRA owner to withdraw up to $108,000* per year from an IRA and, with proper eligibility and reporting, the withdrawal is not subject to taxation!
First, the account owner must qualify for QCD. The IRA owner must be age 70½ or older to qualify. QCDs can only be taken from an IRA. This strategy is currently not allowable for 401k and 403b plans. Additionally, the distribution must be made payable to a qualifying charity. At this time, contributions made to private foundations and donor-advised funds are not eligible through the QCD provision. IRA holders that wish to execute the QCD strategy should consult with their tax professional before initiating a QCD to ensure that the chosen charity is eligible.
Second, proper tax reporting must be done to ensure that the QCD is not subject to taxation. IRA custodians will issue a 1099-R tax form showing all distributions made from the IRA in the previous year. The IRA custodian will not indicate on the tax form that a distribution was made to a charity thus it needs to be communicated to the IRA holder’s tax professional to make sure proper tax reporting is done for the QCD.
Since QCD distributions are not included in your taxable income, potential negative tax implications are avoided. An ordinary taxable IRA withdrawal increases income which impacts taxation on social security benefits and Medicare Part B premiums.
For taxpayers that itemize their deductions, the QCD strategy may be a better alternative versus taking the charitable contribution as an itemized deduction. The standard deduction was dramatically increased starting in 2018 making it more unlikely that tax payors will find itemizing their deductions to be greater than the standard deduction. The QCD provision offers tax benefits of a charitable contribution without the need to itemize your deductions.
An added bonus of this strategy is that the QCD satisfies the IRA owners Required Minimum Distribution (RMD). Pre-tax retirement accounts have been funded with pre-tax monies and earnings have accumulated tax-deferred. The IRS stipulates that a Required Minimum Distribution (RMD) must be taken from pre-tax retirement accounts when a certain age is attained**. QCDs allow an IRA owner to kill two birds with one stone: satisfy IRA RMDs while having the satisfaction of contributing to a qualified charity all while avoiding taxation on the withdrawal.
For IRA owners who are 70½ and do not need the IRA income to meet current living expenses, Qualified Charitable Distributions may be an option to consider. QCDs are a valuable way for charitably inclined IRA owners to satisfy their yearly RMD requirements in a tax efficient manner. Prior to implementing a QCD strategy, it is advisable to seek council from your qualified tax advisor to determine the benefits of this strategy specifically for your situation.
*QCD limits for 2025 are $108,000 and subject to change in future years.
**For those born in 1959 or earlier, RMD age is no greater than age 73; for those born in 1960 or later the RMD age is 75.

Adam Smit is a CERTIFIED FINANCIAL PLANNER™ with Adam Smit Investment Management LLC and a registered principal of LPL Financial. This article is for general information only and not intended to provide specific advice or recommendations for any individual. It is encouraged that you work directly with your qualified tax preparer in reporting QCDs appropriately. Adam Smit Investment management LLC and LPL Financial do not provide tax or legal advice. Securities offered through LPL Financial. Member FINRA/SIPC