If you're 70½ or older with money in a traditional IRA, there's a move that can shrink your tax bill and help a cause you care about at the same time.
It's called a qualified charitable distribution, or QCD, and it lets you send money straight from your IRA to a charity.
The catch is that a lot of people who could use it have never heard of it.
Once you hit 70½, you can direct up to $105,000 per year (the 2024 limit, adjusted for inflation) from your IRA directly to a qualified charity.
The money goes straight from the account to the organization.
You never touch it, so it never shows up as income on your tax return.
Normally, when you pull money from a traditional IRA, it counts as taxable income.
That can push you into a higher bracket, raise your Medicare premiums, and make more of your Social Security taxable.
A QCD sidesteps all of that because the distribution is excluded from your gross income.
You can start making QCDs at 70½, but your required minimum distributions, or RMDs, don't kick in until 73.
That gap gives you a window to use QCDs to satisfy part or all of your RMD once it starts — and the QCD can count toward it.
Since the standard deduction jumped in 2018, many older Americans no longer get a tax break for charitable giving because they take the standard deduction instead.
A QCD is one of the few ways left to get a charitable benefit without itemizing.
There are rules you have to follow carefully.
The money must go directly from the IRA custodian to the charity.
If you withdraw it first and then write a check, it doesn't count.
You also need to keep records, and the charity must be a qualified 501(c)(3).
Donor-advised funds and private foundations generally don't qualify.
One more thing to know: a QCD can't be used for a gift that gets you something in return, like a charity dinner or gala ticket.
For married couples, each spouse can do this from their own IRA, which effectively doubles the limit.
And because the transfer never hits your checking account, it doesn't affect your adjusted gross income, which can help with everything from Medicare surcharges to the taxation of Social Security benefits.
If you're charitably inclined and sitting on a traditional IRA, ask your custodian about a QCD before you write another check.
The paperwork is usually a one-page form, and the tax difference can be real.
The move isn't flashy and it won't make headlines, but for the right household it's one of the cleanest tax tools available in retirement.
Final Thoughts
It's worth a phone call to your IRA provider — and maybe to your tax preparer — before the year ends.