How Can I Reduce My Taxes With Charitable Giving in Retirement?
If you’ve reached the age where Required Minimum Distributions (RMDs) apply, you may be wondering how to lower your tax bill. One powerful option is a Qualified Charitable Distribution (QCD). A QCD lets you send money directly from your IRA to a qualified charity, reducing your taxable income — without needing to itemize deductions. With the right planning, QCDs can be a smart way to give back while keeping more of your retirement income working for you.
Here are a few key things to know:
1. You must be of RMD age to make a QCD.
If you were born in 1960 or later, your RMD age is 75.
If you were born between 1951 and 1959, your RMD age is 73.
2. A QCD can offset your RMD.
Even if you don’t need the money for current expenses, the IRS requires distributions once you reach RMD age — because they want to tax those savings. A QCD allows you to satisfy your RMD without paying tax on the distribution, as long as it goes directly from your IRA to a qualified charity. Best of all, you still benefit even if you take the standard deduction.
3. You can’t use a Donor-Advised Fund.
QCDs must go directly to a qualified charity. Donations to donor-advised funds, private foundations, or supporting organizations do not count.
4. Only IRAs qualify.
You can make QCDs from IRAs (including inherited IRAs), but not from 401(k), 401(a), 403(b), or 457(b) accounts. If most of your savings are in those plans, you may need to roll some funds into an IRA first. Make sure to complete this rollover before 12/31 of the year your RMD is calculated.
5. QCDs only offset IRA RMDs.
Each account type has its own RMD calculation, based on the prior year’s 12/31 balance. That means a QCD only applies against the RMD for your IRA — not your 401(k) or 403(b). If your IRA balance is small, your potential QCD benefit will also be small.
If you’re younger than RMD age but want to reduce taxable income through charitable giving, there may be other strategies available — I can help you explore your options.
If you’re of RMD age and want to see how QCDs could fit into your retirement plan, let’s set up a time to talk.
