Leveraging your IRA for charitable giving

How to make a meaningful impact with your RMDs.

Financial stability, legacy and personal fulfillment are just a few reasons why so many people aged 50 to 80 are committed to giving. A recent study revealed that 78% of this age group say giving plays a significant role in their lives.

These findings showcase the importance of incorporating charitable giving into your retirement planning conversations, so you can continue to make an impact on the causes you care about. Also, there are tax benefits to giving, making it even more rewarding to do good.

Turn RMDs into QCDs

Those who don’t need their required minimum distributions (RMDs) to maintain their lifestyle can use qualified charitable distributions (QCDs) from their IRA to support the charities close to their heart while reaping tax benefits. During retirement, this strategy helps put the money to good use for favorite charitable missions.

The age to begin taking required distributions from your IRA has increased over the past few years from 70 1/2 to 73. But you can still begin making QCDs at age 70 1/2. While RMDs are typically treated as taxable income, QCDs up to $108,00 for tax year 2025 will not be taxed. QCDs also satisfy your RMD. QCDs are a strategic way to donate to charities, reduce tax liability, support tax efficient charitable goals, while satisfying your RMD requirements.

Note that if your RMDs exceed the annual QCD limit, only the amount up to the limit will qualify as a QCD. This limit is indexed for inflation every year and will fluctuate.

When a QCD satisfies an RMD, it lowers your adjusted gross income. The distribution amount is also excluded from various tax formulas, so it can help you avoid higher taxes on Social Security benefits, Medicare Part B and D premiums, and the Medicare tax on investment income.

QCDs are beneficial for taxpayers who take the standard deduction or itemize. For those who itemize, the QCD does not count toward the maximum amounts deductible and allows donors to give beyond what they could in just cash and assets.

The fine print

To make the most of your charitable giving through QCDs, it’s important to understand the related rules and regulations.

You must make the donation directly from your IRA to a qualified public charity.  IRA withdrawals that are distributed to you first with the intent of donating do not qualify as QCDs. Your IRA custodian and financial advisor can help you make the distribution in accordance with guidelines to ensure it counts.

The donor must not receive any benefit in return for making the donation, such as tickets to an event or the option to use the funds to buy auction items.

QCDs from SEPs and SIMPLE IRAs are not permitted. And certain charities, like donor advised funds and private foundations, are not eligible to receive QCDs.

Make QCDs early in the year, because the first dollars withdrawn from an IRA count toward the RMD. You won’t be able to offset earlier RMDs by making a QCD later.

SECURE 2.0 Act

The SECURE 2.0 Act has further changed the IRA inheritance landscape and may provide even more incentive for transforming RMDs into QCDs.

Effective January 1, 2025, the law requires non-eligible IRA beneficiaries (children, for example) to spend down an inherited IRA within 10 years of the original owner’s death, limiting the ability to enjoy prolonged tax-free growth. This is known as the 10-year rule.

The 10-year rule can have a major impact on beneficiaries, from a tax standpoint, especially if they’re still in their high-earning years. The money they’ll be required to spend down is taxable income. Reducing the IRA balance and tax burden through QCDs can be especially helpful for beneficiaries of larger accounts, and those already taxed at higher rates. Only IRA beneficiaries that are 70.5 or older are eligible to make QCDs. 

In addition to the 10-year rule, SECURE 2.0 expanded the QCD rules to allow for a one-time $50,000 distribution from one or more IRAs to one of the following split-interest entities: a charitable remainder annuity trust, charitable remainder unitrust or charitable gift annuity. This option offers more flexibility in your charitable giving strategy.

Considerations such as these highlight the importance of having a comprehensive charitable giving conversation with your advisor if you’re planning to be philanthropic in retirement. By preparing, you can develop a more strategic approach to charitable giving, ensuring that your contributions have the greatest impact for both you and the causes you support.

Raymond James does not provide tax advice. Please discuss these matters with your tax professional.

¹Fidelity Charitable