If you are 73 or older and you still write checks to your favorite charity, you may be leaving money on the table in a way that is surprisingly easy to fix.
The strategy is called a qualified charitable distribution, and it lets you send money straight from an IRA to a charity without ever touching your own bank account.
Once you hit required minimum distribution age, the IRS forces you to pull a certain amount out of your traditional IRA every year, whether you need the cash or not.
That withdrawal lands on your tax return as ordinary income, and it can bump you into a higher bracket, raise your Medicare premium, or shrink deductions you were counting on.
A qualified charitable distribution, often shortened to QCD, sidesteps most of that.
You ask your IRA custodian to send money directly to an eligible charity.
The amount counts toward your required minimum distribution for the year, but it never shows up as taxable income on your return.
You do not itemize to get the benefit, which matters now that the standard deduction is so large that many households no longer itemize at all.
The rules are specific, so pay attention to the details.
You must be at least 70 and a half years old to make one.
The cap is $105,000 per person for 2024, and it is indexed for inflation in later years.
The money has to move directly from the IRA to the charity.
If you take the cash out first and then write a check, the IRS treats it as a normal taxable withdrawal, and the magic disappears.
There are a few more wrinkles worth knowing.
QCDs only work with traditional IRAs and inactive SEP or SIMPLE IRAs.
They do not apply to 401(k)s or 403(b)s while you are still working for that employer.
You can also use a QCD to satisfy more than just your required minimum distribution, which means it can be a clean way to give in years when you do not need the income.
Donor-advised funds and private foundations generally do not qualify, so the money needs to go to a public charity.
If you make a QCD and also take other withdrawals from the same IRA, the order in which the money comes out can affect your taxes.
Talk to your custodian about sequencing, and keep the paperwork showing the transfer went straight to the charity.
If you file your own taxes, that documentation is your proof if the IRS asks questions.
If you give to charity and you have an IRA, this is one of the few tax breaks that rewards you for being generous instead of punishing you for having saved well.
My take: most people hear about this strategy from a financial advisor who charges a fee, but you can set it up yourself with a phone call to your IRA custodian.
Final Thoughts
Do the math before December, because the deadline is firm and the paperwork takes a few weeks.