The IRS has carved out a way for individuals over age 70.5 to make certain IRA distributions to charities that can be excluded from taxable income.
We define this as a Qualified Charitable Distribution (QCD). If you practice charitable giving and are over the age of 70.5, read on!
Making donations to charitable organizations – particularly at year-end – is an annual tradition for many Americans. Some consider it an essential part of the holiday season; to give back.
Although this behavior is generally beneficial, there is a downside.
Many of us tend to donate automatically without considering alternative and more effective ways to donate. We simply go through the usual year-end motions.
As a result, some Americans are missing a key gifting strategy that can help their money go even further.
Tax-Efficient Donations with Qualified Charitable Distributions
We must first reiterate that currently, only individuals 70.5 years of age or older are eligible to use the QCD tool.
You’ll need to wait until after you’re 70 years and 6 months old before qualifying. So, plan your gifts accordingly!
A typical IRA withdrawal will count toward the individual’s taxable income for the year. QCDs allow eligible IRA distributions to be excluded from taxable income when paid directly to a qualified charity.
Consider, for example, 73-year-old Jim who donates $5,000 to his local homeless shelter every December. The organization runs a donor-backed gift-matching program every December. Jim typically writes a check from his bank account for the donation. Instead, by sending the money as a check distribution from his IRA payable directly to the homeless shelter, Jim was able to exclude this IRA distribution from his taxable income. This money would’ve otherwise been taxable income.
You can see how using this strategy consecutively, can result in great tax savings for Jim. In addition, this strategy can potentially give him additional flexibility to give more as a result.
This type of gifting has become more relevant in today’s tax landscape, where many individuals claim the standard deduction rather than itemizing.
As a result, charitable gifts do not always provide a direct tax benefit each year, which has led some people to explore different ways of structuring their giving.
How Does a Qualified Charitable Distribution Work?
To qualify as a QCD, donations must follow specific rules and requirements as there are certain caveats to consider. So be sure to mind the fine print!
Only certain account types qualify
The IRS specifies that individuals can only process QCDs from the following account types: Traditional IRAs, rollover IRAs, inherited IRAs, inactive Simplified Employee Pension (SEP) plans, and inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs. (Inactive SEP and SIMPLE IRAs are accounts that no longer receive employer contributions for the year.)
You must send the donation directly to a qualified organization
In order for a given distribution to meet the definition of a QCD, the funds must be payable to a qualified charitable organization, as defined in the tax code. If the organization has not legally registered as such, you cannot count your donation as a QCD.
Moreover, you must make the account distribution payable directly to the organization. For example, sending funds from the investment account to your bank account, and then writing a check to the charity, will not qualify.
QCDs cannot be made to donor-advised funds (DAFs), supporting organizations, or most private foundations. The donor also cannot receive any goods or services in exchange for the contribution.
A common real-world example is a fundraising event hosted by a charity where meals, entertainment, or other benefits are received in exchange for the contribution. Those types of payments would not qualify as QCDs.
In 2026, the limit for QCDs is $111,000 per person per year
Another wonderful thing about QCDs is that you are not limited to just one transaction. You can process as many separate donations as you like, thereby spreading the benefits of this tax planning tool to multiple organizations if you so choose.
However, as of 2026 the IRS capped QCDs at $111,000 per individual per year. This number has historically been indexed to inflation, and may change year over year.
Anything donated over the annual amount will be treated as a normal taxable IRA distribution.
Deductible IRA contributions made after age 70.5 may reduce the portion of future QCDs that can be excluded from income.
Record keeping is key
The regular rules for substantiating your charitable donations must still be followed. That includes maintaining an account statement or written communication from the charity showing the organization’s name, the date of the donation, and the amount.
For larger donations, the documentation requirements are more detailed. This threshold has historically been $250 or more. In those cases, written confirmation from the charity is typically required and should also state whether any goods or services were provided in exchange for the contribution.
The Check-Writing Option
Some IRA custodians offer check-writing as a tool for account owners to use and it is well worth the time to inquire about this, especially for charitably inclined individuals who enjoy spreading donations across multiple charities.
Instead of filling out a form or calling the account custodian every time you’d like to process a donation, you can ask about check-writing.
Check-writing gives you the ability to literally write the check yourself. You’ll need to make sure you have enough money available in the cash portion of your account. This is necessary to cover the full value of the check before writing it. For those who track their accounts closely, this shouldn’t be a problem.
Tax Reporting Essentials
Come tax season, your 1099-R may not clearly identify QCDs in a way that guarantees correct tax reporting, even if coding is present.
The burden therefore falls to you to make sure this gets reported properly on your taxes. However, there is a space provided on your return to indicate the taxable amount of your IRA distributions versus the total sum of all distributions.
QCDs & RMDs (Required Minimum Distributions)
The value of the QCD increases once an individual is required to take Required Minimum Distributions (RMDs).
The RMD is an IRS mandate requiring the owners of certain types of accounts – including IRAs – to withdraw a certain dollar amount per calendar year.
For account owners who do not need to take the RMD as income, and who would be making charitable donations regardless, utilizing the QCD is a great way to hit two birds with one stone.
They can both fulfill their RMD and reduce their tax bill by sending their donation sum directly from their investment account by calendar year end.
Summary
QCDs are an incredibly valuable tool for account owners who have reached the eligible age, but they are unfortunately overlooked as a gifting strategy all too often.
In many cases, this is simply due to a lack of information; either being unaware of the tool itself or being unsure of the various guidelines and caveats around it. However, with just a little effort and record-keeping, you can take advantage of the QCD rule to maximize your charitable efforts and reap the tax benefits it provides.