Are Qualified Charitable Distributions Right For You?

How to use IRA RMDs to maximize the tax deductibility of your charitable donations.

The Tax Cuts and Jobs Act of 2017 doubled the standard deduction eliminating the need for many taxpayers to itemize their tax deductions. It also made permanent an IRA distribution strategy known as the Qualified Charitable Distribution or QCD.

If you are over 70 ½, own an IRA, and make financial contributions to qualified charitable organizations, the QCD may have a role in your IRA distribution plan.

First some basics… 

The IRS says that all IRA owners over 70 ½ must make a required minimum distribution from their IRAs every year. The amount of your distribution or RMD depends on your previous yearend account balance and your age during the year of the distribution.

Older IRA owners, those with higher incomes or those with large IRA balances, could have significant IRA RMDs in 2019.

To get more details on the IRA RMD rules and calculations, click here.

Qualified Charitable Distributions or QCDs have their own set of rules.

First, the IRA owner must actually be age 70 ½ or older at the time of the distribution.

Second, the aggregate QCD from all IRAs cannot exceed $100,000.

Third, the distribution must go directly to a 501(c)(3) charitable organization. Most churches, hospitals, educational institutions and charities qualify.

You must meet all three of those requirements to qualify as a QCD.

 QCDs also have some unique benefits.

With the higher standard deduction created by the new tax law, it’s possible that your charitable contributions may no longer be tax deductible. That’s because the new standard deduction may be higher than the total amount of your itemized tax deductions.

If so, you get no benefit by itemizing your tax deductions. You are better off to take the higher standard deduction instead, regardless of if you made any charitable contributions or not.

So, in previous years you may have taken your IRA RMD and added it to your taxable income for the year. Then you may have made a charitable contribution and written that off against your taxable income as an itemized deduction. The two transactions netted out. Thus, you avoided paying tax on some or all of your IRA RMD.

This year, if you use the QCD strategy, your charitable contribution goes straight to the charity of your choice directly from your IRA and you avoid adding it to your taxable income for the year. However, you still get to enjoy the same standard deduction. This effectively lowers your taxes because you will get the full benefit of the higher standard deduction and your IRA RMD wont be added to your taxable income for the year.

Another unique benefit of the QCD

A well-planned QCD strategy has another benefit that could be significant for some taxpayers. Since the QCD bypasses your adjusted gross income, utilizing a QCD strategy could result in lower taxes on your Social Security benefits and/or reduced Medicare premiums.

This is because your Social Security benefits are taxed based on your Modified Adjusted Gross Income (MAGI). Taking an IRA RMD without utilizing the QCD strategy raises your MAGI by the amount of your IRA RMD.

Depending on your MAGI, up to 85% of your Social Security benefits could be taxable. Using the QCD strategy could allow you to stay under the threshold amounts and reduce the amount of tax you pay on you Social Security benefits.

Your income also effects how much you pay for Medicare premiums. The higher your income, the higher your premiums. IRA RMDs add to your income for the year. For more details on the income threshold amounts and Medicare Premiums, check out or click here.

Best fit

A QCD strategy may be a fit for charitably inclined taxpayers whose itemized deductions, including charitable deductions, are lower than the new standard deduction amounts. They may also be a fit for higher income taxpayers with large IRA RMDs that could result in the payment of higher Social Security taxes or Medicare premiums.

Ask your tax professional or financial advisor if they are a fit for you.