The Benefits of Donating Your RMDs to Charity

Want to give back and potentially save on taxes? If you’re 70½ or older, a qualified charitable distribution (QCD) lets you donate directly from your IRA to a charity, reducing taxable income and helping offset the impact of required minimum distributions (RMDs).

If you’re aged 70 ½ or older, you can consider what’s known as a “charitable IRA rollover,” or qualified charitable distribution (QCD). Donating this way not only helps a worthy cause; it can also help save on your taxes. This is especially important because RMDs are subject to ordinary income taxes and, depending on your situation, could push you into a higher tax bracket, which could – in turn – affect your Social Security payments and Medicare benefits.

How QCDs Work

You can make a QCD from traditional IRAs (including inherited IRAs) and from SEP or SIMPLE IRAs that are not ongoing. An SEP or SIMPLE IRA is ‘ongoing’ if an employer contribution is made for the plan year that ends in the calendar year of the donation; QCDs aren’t allowed from ongoing SEP/SIMPLE IRAs. QCDs can’t be made directly from 401(k) or 403(b) plans.” 

According to the IRS, if you have a traditional, SIMPLE or SEP IRA, you generally have to take required minimum distributions (RMDs) each year, beginning with the year you turn 73 (if you reached age 72 after Dec. 31, 2022). Beginning in 2033, the RMD age is scheduled to rise to 75 under SECURE 2.0. However, if you don’t need these funds from your IRA to pay for your living expenses and you’d rather donate the money to an eligible charity, such as a 501(c)(3) organization, you can make a QCD. A QCD can satisfy all or part of the amount of your RMD for the year, depending on how much you choose to donate. For example, if your RMD was $15,000 and you donate half, you would still need to take the other half to satisfy the IRS’s RMD requirement.

While RMDs are taxable, a QCD is a direct distribution from your IRA to an eligible charity, so when you use your RMD in this way, you lower your taxable income. You can use any contributions and earnings that have accumulated in your IRA with the exception of nondeductible contributions, which are considered a tax-free return of basis. To count toward the current year’s RMD, the QCD must occur by the date you satisfy that year’s RMD–generally Dec. 31. If it’s your first RMD year and you defer your initial RMD into the following year, note you’ll have two RMDs due that year; QCD timing should account for that.

QCDs are limited to what would otherwise be taxed as ordinary income, and the maximum annual amount that can qualify for a QCD in 2025 is $108,000. In the situation of a married couple filing jointly, spouses can each make a QCD from their IRAs of up to $108,000 as long as they make the QCD within the same tax year.

Finally, when you make a QCD, you won’t need to itemize your deductions on your tax return since you will have already excluded the QCD from your taxable income. However, you also won’t be able to claim the QCD as a charitable tax deduction.

Restrictions Apply

As with many tax issues, the rules for making QCDs can be complicated, and different rules may apply to you, depending on your personal situation. It’s also important to note that if you donate an amount above your RMD in a particular year, the overage cannot be applied toward your RMD for the following year.

In addition, SECURE 2.0 allows a one-time, lifetime QCD to a split-interest entity (such as a charitable remainder trust or charitable gift annuity). The limit is $54,000 for 2025 (indexed; $53,000 in 2024).

Your Advisor Can Help

QCDs can be a great way to make a substantial gift to a charity while getting the tax efficiencies you may need. Your financial or tax advisor can help you develop the best RMD and charitable gifting strategies for your situation and can help you better understand how the rules regarding QCDs apply.

Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.