If you are 73 or older and have money sitting 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 has been legal since 2006.
Yet a surprising number of retirees have never heard of it.
Once you turn 70½, you can ask your IRA custodian to send money directly from your account to a qualified charity.
The IRS treats that transfer as a distribution, but it never shows up as taxable income on your return.
The annual limit is $105,000 per person in 2024, and it's indexed for inflation going forward.
The timing matters more than people realize.
You can start QCDs at 70½, but required minimum distributions don't kick in until age 73.
Every dollar you send to charity before your RMD age is a dollar that never lands in your adjusted gross income, which can affect everything from Medicare premiums to how much of your Social Security gets taxed.
Even after you hit 73, the strategy still works.
A QCD can count toward your required minimum distribution for the year.
So instead of pulling money into your checking account, paying tax on it, and then writing a check to your church or alma mater, you cut out the middle step.
The charity gets the full amount, and the IRS gets nothing.
The money has to move straight from the IRA to the charity.
If it touches your bank account first, the IRS counts it as a normal distribution.
You also can't claim a charitable deduction for the same dollars on your tax return — that would be double-dipping.
And donor-advised funds don't qualify as the receiving charity, though you can route a QCD to many other types of nonprofits.
The payoff can be bigger than the paperwork suggests.
Retirees who don't itemize usually get zero tax benefit from writing a check to charity.
For someone in the 22% bracket sending $5,000 to a food bank, that's roughly $1,100 in taxes avoided, plus a smaller hit to the income numbers that feed into Medicare surcharges.
Call your IRA provider, ask for their QCD form, and have the charity's legal name and tax ID handy.
Most large brokerages process these in a few business days.
Keep the receipt from the charity and a copy of the transfer confirmation in case the IRS asks questions later.
One catch worth knowing: the $105,000 limit is per person, not per household.
A married couple with separate IRAs can each give that amount, doubling the ceiling.
And starting in 2024, the limit adjusts annually, so check the current figure before you commit.
If you're charitably inclined and sitting on a traditional IRA, this is one of the few tax breaks that rewards you for doing something you were probably going to do anyway.
Final Thoughts
Talk to your tax preparer before December, since the transfer has to be completed by year-end to count.