Qualified charitable distributions (QCD) are an effective tax planning tool to reduce an individual’s taxable income while simultaneously providing financial support to charitable organizations for those who are charitably inclined. A QCD is a distribution from an Individual Retirement Account (IRA) made directly by the IRA trustee to a charitable organization qualified to receive tax-deductible contributions (not including donor advised funds or private foundations). The funds do not pass through the hands of the IRA owner.
Traditional IRAs have required minimum distributions (RMD). An RMD is the minimum amount that the account owner is required to withdraw annually. RMDs from an IRA begin when the account owner reaches age 73, and depending on the year of birth, could start at late as age 75. Amounts must be withdrawn from the account, even if the owner doesn’t want or need the income. Generally, an IRA distribution to a taxpayer is taxable in the year the money is received.
A taxpayer who is at least age 70 ½ on the date of the distribution can make a QCD. The QCD counts towards fulfilling the required minimum distribution requirement and the amount of the QCD is not included in the taxpayer’s taxable income.
The maximum amount of QCD for 2026 is $111,000. The same rules also apply to a spouse, so the total maximum amount for QCDs on a married filing jointly 2026 return is $222,000. The amount of QCD is limited to the amount that would otherwise be included in income. Taxpayers can make a higher distribution than their RMD, however, the extra distribution amount will not carry over to meet the RMD in future years.
The amount of a QCD is not included in taxable income, which results in several advantageous tax planning strategies. A QCD can be made as one large charitable contribution during the year or several distributions throughout the year to different charities. Since it is not included in income, taxpayers may avoid higher income tax brackets. QCDs may also help prevent phaseouts of other tax deductions and avoid higher taxes on Social Security income as well as reduce the cost for Medicare which is impacted by a taxpayer’s gross income. The amount of QCD will not be an additional itemized deduction for charitable contributions as the amount is not included in income. The QCD strategy avoids the new charitable deduction limitations that began in 2026 including the 0.5% floor on charitable deductions and the overall itemized deduction limitations.
There are instances when a QCD may not be as effective as other tax planning strategies. If a taxpayer wants a large tax deduction in the current year and then to support various charities over several years, a donor advised fund may be the better option. If the taxpayer wants to donate securities that have appreciated in value since they were acquired, there may be a greater tax benefit to donate the securities directly to the charity instead of using a QCD.
Taxpayers should consider QCDs in the following situations:
- Required to make an IRA distribution but do not need the funds
- Would incur increased tax liabilities if RMD was included in income
- Tax planning strategies include reducing the IRA balance to lower RMDs in future years
- Taxpayer could make larger gifts with a QCD than if cash or other assets were donated
Our experienced team at Waverly Advisors is here to help! If you have questions about tax strategies and planning for charitable contributions, please contact your Waverly Advisors representative.
