Qualified Charitable Distributions: A Strategic Tool for Tax-Efficient Giving

As individuals approach retirement, many begin to think not only about preserving their wealth, but also about giving back. For those with Individual Retirement Accounts (IRAs), Qualified Charitable Distributions (QCDs) offer a unique opportunity to support charitable causes while reducing taxable income. At first glance, a QCD may seem like a simple transfer of funds. But beneath the surface lies a powerful planning tool—especially considering recent legislative changes.

The One Big Beautiful Bill Act (OBBBA), which was signed into law in July 2025, introduced sweeping changes to the tax code, including how charitable contributions are treated. These changes have made QCDs even more valuable for retirees seeking to maximize the impact of their giving while minimizing their tax burden.

What Is a Qualified Charitable Distribution?

A Qualified Charitable Distribution is a direct transfer of funds from an IRA to a qualified charitable organization. Available to IRA owners aged 70½ or older, QCDs allow individuals to donate up to $108,000 per year (as of 2025) without counting the distribution as taxable income. This amount, which is indexed for inflation, can be used to satisfy all or part of the donor’s Required Minimum Distribution (RMD).

Unlike traditional charitable contributions, which require itemizing deductions, QCDs reduce adjusted gross income (AGI) directly. This distinction is important because QCDs are not subject to the same AGI limits as regular charitable contributions. Further, lowering AGI can positively affect other areas of a retiree’s financial life, including Medicare premiums, Social Security taxation, and eligibility for certain tax credits.

To qualify, the distribution must be made directly from the IRA custodian to a qualified 501(c)(3) organization. Donor-advised funds and private foundations are excluded, however. The donor must also be at least 70½ at the time of the distribution—not merely turning 70½ later in the year.

The One Big Beautiful Bill Act: A New Tax Landscape

The OBBBA is a continuation of the tax policies enacted during President Trump’s first term and makes permanent several provisions from the 2017 Tax Cuts and Jobs Act (TCJA). Among the most notable is the permanent increase in the federal estate and gift tax exemption to $15 million per person, effective in 2026. But for charitably inclined retirees, the most relevant changes are those affecting deductions.

The Act reintroduces an above-the-line charitable deduction for non-itemizers, which is $1,000 for single individuals and $2,000 for married couples. While this is a welcome benefit for modest donors, it pales in comparison to the tax efficiency of QCDs, which offer a dollar-for-dollar reduction in taxable income without the need to itemize.

More significantly, the OBBBA imposes a new 0.5% AGI floor on charitable deductions for itemizers starting in 2026. This means that only the portion of charitable contributions exceeding 0.5% of AGI is deductible. For example, a taxpayer with $400,000 in AGI would need to give more than $2,000 before receiving any tax benefit. Additionally, the value of itemized deductions is now capped at the 35% tax bracket.

These changes reduce the appeal of traditional charitable giving strategies for many high-income taxpayers. In contrast, QCDs remain fully excluded from income and are not subject to these new limitations.

Why QCDs Matter More Than Ever

In this new environment, QCDs stand out as one of the few remaining tools that offer a full and immediate tax benefit—regardless of whether the donor itemizes. Because QCDs reduce AGI directly, they bypass the new deduction floor and cap, making them especially attractive for high-income individuals and those who no longer itemize.

Planning Considerations

While the mechanics of a QCD are relatively straightforward, timing and coordination are key. The distribution must be completed by December 31 to count for that tax year. It’s also important to ensure that the funds go directly from the IRA custodian to the charity; if the donor receives the funds first, the distribution will be treated as taxable income. A deduction could still be claimed, though.

QCDs can be particularly effective when paired with other planning strategies. For example, retirees who do not need their full RMD for living expenses can use QCDs to satisfy the RMD while supporting causes they care about. Others may use QCDs to mitigate the effects of spikes in income from Roth conversions, asset sales, or deferred compensation payouts.

For those with larger charitable goals, it’s worth noting that the annual QCD limit is per individual, not per IRA. Married persons who have their own IRAs can each make QCDs up to the annual limit, effectively doubling their impact.

A Tool for Purposeful Giving

QCDs offer a rare combination of simplicity, flexibility, and tax efficiency. In a post-OBBBA world where traditional charitable deductions are more limited, QCDs remain one of the most effective ways for retirees to support the causes they care about while managing their tax exposure. Whether used to fulfill RMDs, reduce AGI, or create a lasting philanthropic legacy, QCDs deserve a central place in any thoughtful retirement income or estate plan.

At 1919 Investment Counsel, we welcome your questions about QCDs and how they may fit into your broader financial goals. Contact your Portfolio Manager or Client Advisor to learn more about how this strategy can support both your charitable intentions and strengthen your long-term financial well-being.

About 1919 Investment Counsel
1919 Investment Counsel is a registered investment advisor. Its mission for more than 100 years has been to provide investment counsel and insight that helps families, individuals, and institutions achieve their financial goals. The firm is headquartered in Baltimore and has offices across the country in Birmingham, Cincinnati, New York, Philadelphia, San Francisco and Vero Beach. 1919 Investment Counsel seeks to consistently deliver an extraordinary client experience through its independent thinking, expertise and personalized service. To learn more, please visit our website at 1919ic.com.

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Published: September 2025