If you are 70½ or older with money sitting in a traditional IRA, there is a move that lets you support a cause you care about without adding a single dollar to your taxable income.
It is called a qualified charitable distribution, or QCD, and it has been part of the tax code since 2006.
Yet financial planners say a surprising number of retirees who give generously every year have never heard of it.
Once you hit 70½, you can direct your IRA custodian to send money straight from your account to a qualified charity.
The amount counts toward your required minimum distribution if you have one, and because the money never touches your hands, it never shows up as income on your tax return.
A normal withdrawal from a traditional IRA is taxed as ordinary income, and it can push you into a higher bracket, raise your Medicare Part B and Part D premiums, and even shrink the portion of your Social Security that stays tax-free.
You can give up to $105,000 per person in 2024, and that figure is indexed for inflation, so it rises over time.
A married couple with separate IRAs can each give the full amount.
The transfer has to go directly from the IRA to the charity — if you take the cash first and write a check, it does not qualify.
QCDs apply to traditional IRAs and inactive SEP or SIMPLE IRAs.
You cannot use a 401(k), a 403(b), or a Roth IRA for this purpose.
The charity also has to be a legitimate 501(c)(3) organization, and you cannot route the money to a donor-advised fund or a private foundation and still get the QCD treatment.
One of the quieter benefits is that you do not have to itemize.
Since the standard deduction jumped in 2018, many retirees no longer itemize, which means their charitable gifts no longer produce a write-off.
A QCD works whether you itemize or not, because the benefit comes from keeping income off your return rather than from a deduction.
If you are 70½ but not yet 73, you may not have a required minimum distribution yet — the age for RMDs rose under recent law — but you can still make QCDs.
Track your giving carefully, because charities sometimes send acknowledgment letters that do not reflect the true source of the funds, and your IRA custodian's records are what the IRS will look at.
The transfer has to be completed by December 31 of the tax year you want it counted in.
Requests submitted in late December sometimes sit in processing queues and land in January, which means they count for the following year.
If you are planning a year-end gift, start the paperwork in early December.
For retirees who already tithe or give regularly, the math is simple: the same gift you were going to make anyway can now reduce your taxable income instead of being an after-tax expense.
That is money back in your pocket, not a new cost.
Our take: the QCD is one of the few tax breaks that rewards behavior many Americans are already doing.
Final Thoughts
If you are over 70½ and give to charity, it is worth a fifteen-minute call to your IRA custodian before the year runs out.