Looking for a tax-smart way to give to charity? At Pathview Wealth Advisors, our family-focused San Diego based team specializes in wealth management and tax planning strategies that help you give back with a tax-centric approach. Among these strategies, QCDs are a tax-smart strategy and one of the most powerful tools for retirees who want to combine charitable giving with tax-efficient planning.
Key Summary
QCDs allow retirees to donate directly from their IRA to a qualified charity—reducing taxable income and supporting causes you care about; this is tax-smart giving. They’re especially valuable between ages 70½ and 73, before Required Minimum Distributions (RMDs) begin. Making QCDs before taking RMDs can potentially lower IRA balances and future RMDs. Timing matters because of the IRS “first-dollar-out rule”. Discover how to use QCDs for tax-smart giving effectively during these years.
For 2025, the annual QCD limit is $108,000 per individual (or $216,000 for married couples using separate IRAs for charitable giving). QCDs apply only to certain IRA types—not 401(k)s unless rolled over—and must go directly to eligible 501(c)(3) charities (not donor-advised funds or private foundations).
First, A Few Basics About Tax-Smart Giving With QCDs
When can you start making QCDs?
- Age 70½ is the earliest you can begin.
- The sweet spot is between 70½ and 73, before RMDs are mandatory. Tax-smart planning with QCDs during this window reduces IRA balances and has the potential to reduce future RMDs.
Why does timing matter?
The IRS “first-dollar-out rule” means QCDs must come before RMDs if taken in the same year. If you take your RMD first, it’s taxable income—even if you make a QCD later during the same year.
✅ Pro Tip: Make QCDs first, then take RMDs.
Second, Let’s Review QCD Limits and Eligible Accounts
- Annual QCD limit: Currently, it is $108,000 per person in 2025. Married couples can give up to $216,000 combined if they use their own separate IRAs.
- Eligible accounts: Traditional IRAs, Rollover IRAs, Inherited IRAs, and inactive SEP/SIMPLE IRAs.
- Not eligible: Active 401(k) accounts (unless rolled into an IRA first). Please note that you cannot rollover a 401(k) account to an IRA if you are currently employed by the company sponsoring the 401(k).
- Charity rules: QCDs must go directly to a qualified 501(c)(3) charity—not donor-advised funds or private foundations.
Local examples:
- You have the option of creating and funding an Endowment Fund with the use of a QCD. Organizations like Jewish Community Foundation of San Diego have vehicles such as this. You can find out more information here.
- In certain circumstances, QCDs can also support designated funds or field-of-interest funds like those provided by the San Diego Foundation. You can find the list here.
Next, Let’s Review QCD Tax-Smart Benefits and Strategies
Why choose QCDs over writing a check?
- QCDs exclude the amount given to charity from taxable income, which is often better than a deduction, especially for retirees who tend to take the standard deduction.
- Why is having lower AGI important? Lower Adjusted Gross Income (AGI) can reduce:
- Medicare IRMAA surcharges
- Taxation of Social Security benefits
- Phaseouts for senior deductions under OBBBA
✅ Pro Tip: Starting in 2026, charitable deductions face a 0.5% AGI floor and a 35% cap for higher earners due to the OBBBA. Tax-smart giving tools like QCDs will be crucial in 2026. You can also learn about another tax-smart strategy on our blog on the DAF bunching strategy found here.
What Are Common Mistakes to Avoid With QCDs
- Making QCDs before age 70½ (invalid and taxable).
- Using ineligible accounts like 401(k)s.
- Waiting until year-end to send out QCD checks to charity. It is important to note that checks sent to charities will only count towards QCDs in the year cashed.
- Assuming QCDs are tax-deductible (QCDs reduce AGI but don’t offset RMD income).
✅ Pro tip: Make QCDs early in the year and confirm they are cashed before December 31 to avoid losing out on tax benefits.
New Developments To Be Aware Of
Starting in 2026, Form 1099-R will include Code Y for QCDs, simplifying the reporting process. Upcoming tax law changes make QCDs for tax-smart giving even more valuable for high earners due to changes discussed earlier about the new floor of 0.5% of AGI for itemizers starting in 2026.
To Wrap It Up
QCDs are a tax-smart giving strategy that should at the very least be considered in tax planning for retirees. QCDs can:
- Reduce taxable income
- Support charities without affecting Medicare premiums
- Help navigate new deduction limits under OBBBA
At Pathview Wealth Advisors, our family-focused San Diego based team specializes in wealth management and tax-centric planning. We’ll help you integrate QCDs into your tax planning strategy with the help of our in-house CPAs and CFPs.
Ready to make QCDs part of your tax plan?
Contact Pathview Wealth Advisors today and let us help you maximize your charitable impact while minimizing taxes.
Disclaimer: Please note, this content is for general informational purposes only and should not be considered tax or legal advice. Individual circumstances vary. Consult a qualified tax advisor before making any charitable giving decisions.
A Qualified Charitable Distribution (QCD) allows you to donate directly from your IRA to a qualified 501(c)(3) charity. The amount you give is excluded from your taxable income, which can lower your overall tax liability.
You can begin making QCDs at age 70½. This strategy is often most effective before Required Minimum Distributions (RMDs) begin, typically between ages 70½ and 73.
The QCD limit is $108,000 per individual in 2025. Married couples can give up to $216,000 combined if each spouse uses their own IRA.
Yes. QCDs can count toward your Required Minimum Distribution for the year, as long as you make the QCD before taking your RMD.
You should complete QCDs first because of the IRS “first-dollar-out rule.” If you take your RMD first, that amount becomes taxable—even if you complete a QCD later in the same year.
No. QCDs are not tax-deductible because they are excluded from your taxable income instead of counted as a deduction.
QCDs reduce your adjusted gross income (AGI), while charitable donations from a checking account typically require itemizing deductions. Lower AGI can reduce Medicare IRMAA surcharges and taxation of Social Security benefits.
You can make QCDs from:
– Traditional IRAs
– Rollover IRAs
– Inherited IRAs
– Inactive SEP or SIMPLE IRAs
401(k) plans are not eligible unless rolled into an IRA first.
No. You cannot make a QCD directly from a 401(k). You must first roll the funds into an IRA, assuming you are eligible to do so.
QCDs must go directly to qualified 501(c)(3) organizations. Donor-advised funds and private foundations do not qualify.
QCDs lower your adjusted gross income (AGI), which is used to calculate Medicare IRMAA surcharges. Lower AGI can help you avoid higher Medicare premiums.
Yes. Making QCDs earlier can reduce your IRA balance, which may lower future RMD amounts.
Common mistakes include:
– Making QCDs before age 70½
– Using ineligible accounts like 401(k)s
– Taking your RMD before the QCD
– Sending funds to a non-qualified charity
– Waiting too long and missing year-end deadlines
You should complete QCDs early in the year and ensure the funds are received by the charity before December 31. Timing matters because distributions only count in the year the charity receives the funds.
New rules such as limits on itemized deductions increase the value of strategies like QCDs, since they reduce taxable income directly rather than relying on deductions.
Yes. Your IRA custodian will report the distribution on Form 1099-R, and you must indicate that part or all of the distribution was a QCD when filing your taxes.