Charitably minded individuals over age 70½ with Individual Retirement Accounts (IRA) should consider Qualified Charitable Distributions (QCDs) a key tool in their financial planning toolkits. While QCDs have been a trusted giving strategy for nearly two decades, they have become even more valuable as tax laws have evolved in recent years. Let’s take a closer look.
QCDs in Brief
In 2025, IRA owners over the age of 70½ can make tax-free charitable donations of up to $108,000 through QCDs, satisfying part or all of the year’s required minimum distribution (RMD) for those required to take one. QCDs do not increase adjusted gross income (AGI), unlike taxable IRA distributions, and do not require itemizing deductions.
- To remain tax-free, the distribution must be paid directly to a qualified charity by the IRA custodian. In most cases, funds that are first distributed to the individual are taxable. “Qualified charities” do not include donor-advised funds or private foundations for this purpose.
- Married couples can each donate up to the limit from their separate IRAs, provided they both meet the qualifications.
- A beneficiary of an inherited IRA who is over age 70½ can make a QCD.
How We Got Here
We first wrote at length about QCDs in 2018, following the passage of the Tax Cuts and Jobs Act (TCJA). Since then, the biggest change directly to QCDs came with 2022’s SECURE Act 2.0, which introduced inflation indexing for QCD limits. Now adjusted annually, the original $100,000 QCD limit is $108,000 for 2025. This adjustment keeps the ability to give large IRA gifts to charity in line with inflation, making QCDs even more attractive.
Other legislative changes regarding the starting age for RMDs, standard deductions, and itemizable deductions—including those in the One Big Beautiful Bill Act, signed in July 2025—will help determine whether QCDs make sense as part of a taxpayer’s giving and tax strategy.
Why QCDs Are Still a Go-to Strategy in 2025
QCDs continue to stand out because they allow satisfaction of the RMD while removing the amount sent directly to charity from AGI. Why is that important? A higher AGI can quietly trigger a host of “stealth taxes,” including a higher tax on Social Security benefits, higher Medicare premiums, and a reduction in medical expense deductions, which are allowed only to the extent that they exceed 7.5% of AGI. By directing the distribution straight from an IRA to a qualified charity, the amount is excluded from taxable income but still counts toward the RMD. Those who don’t itemize retain the full benefit of the standard deduction and can make a meaningful charitable gift in a tax-efficient way.
Tax deduction bunching will continue to be an effective way for taxpayers to itemize in some years by “stacking up” charitable contributions made using cash or appreciated assets and in other years, using QCDs and taking the standard deduction. The OBBBA also introduced a new AGI floor for the deduction of charitable contributions, which are now only allowed to the extent that they exceed 0.5% of AGI. With the AGI floor taking effect beginning in 2026, bunching in 2025 becomes even more attractive as taxpayers can itemize more of their charitable contributions than they might in future years. Read more about bunching here.
After-Tax Assets and Legacy Planning
A thoughtful approach to legacy planning involves using IRA assets for charitable giving while preserving after-tax assets for heirs. Unlike IRAs, after-tax investment accounts generally receive a step-up in cost basis at the death of the owner. This means that heirs can sell inherited assets with little or no capital gains tax. In contrast, pre-tax IRA assets do not receive a step-up in basis, and distributions to heirs are taxed as ordinary income. By directing charitable gifts from an IRA and retaining after-tax assets for beneficiaries, individuals may enhance the overall tax efficiency of their estate plan. Read more about asset location for tax efficiency here.
New Rules on Reporting QCDs
Historically, with the exception of those due to death or taxes withheld, most IRA distributions—including QCDs—were reported the same way on Form 1099-R. It was up to the taxpayer to inform their tax preparer—and the IRS—that a portion of the distribution qualified as a QCD.
Beginning with 2025 tax filings, however, custodians are required to report QCDs separately using a new code (Code Y) in Box 7 of Form 1099-R. This change was designed to reduce confusion and improve compliance by clearly identifying charitable distributions on the tax form.
That said, implementation is still underway. Many custodians are actively developing processes and updating systems to meet this requirement, and approaches may vary in the early years. As such, it’s important not to rely solely on the tax form.
Even with Code Y in place, receiving a Form 1099-R marked as a QCD does not automatically mean the distribution qualifies for the QCD exemption. The responsibility remains with the taxpayer to ensure that the distribution meets all requirements, including that it was made directly from the IRA to a qualified charity and that the IRA owner was at least 70½ years old at the time of the distribution. Retaining supporting documentation, such as custodian confirmations and written acknowledgments from the charity, remains essential.
A Quick Word on Exceptions
For those with a concentrated stock position with significant unrealized gains, donating those shares directly to a qualified charity could be a better option than a QCD. This can help mitigate capital gains tax and may provide a valuable tax deduction, making it a smart strategy to consider alongside or instead of using QCDs.
Bottom Line
With the QCD limit now indexed for inflation annually and the standard deduction for seniors higher than ever, qualified charitable distributions are an even more powerful tool to make your retirement savings work harder and smarter for you.
Tax laws will continue to evolve, so it’s essential to review your strategy regularly with a trusted advisor. But for now, QCDs offer a prudent approach to philanthropy that can enhance your overall tax strategy.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
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August 12, 2025Charitably minded individuals over age 70½ with Individual Retirement Accounts (IRA) should consider Qualified Charitable Distributions (QCDs) a key tool in their financial planning toolkits. While QCDs have been a trusted giving strategy for nearly two decades, they have become even more valuable as tax laws have evolved in recent years. Let’s take a closer look.
QCDs in Brief
In 2025, IRA owners over the age of 70½ can make tax-free charitable donations of up to $108,000 through QCDs, satisfying part or all of the year’s required minimum distribution (RMD) for those required to take one. QCDs do not increase adjusted gross income (AGI), unlike taxable IRA distributions, and do not require itemizing deductions.
How We Got Here
We first wrote at length about QCDs in 2018, following the passage of the Tax Cuts and Jobs Act (TCJA). Since then, the biggest change directly to QCDs came with 2022’s SECURE Act 2.0, which introduced inflation indexing for QCD limits. Now adjusted annually, the original $100,000 QCD limit is $108,000 for 2025. This adjustment keeps the ability to give large IRA gifts to charity in line with inflation, making QCDs even more attractive.
Other legislative changes regarding the starting age for RMDs, standard deductions, and itemizable deductions—including those in the One Big Beautiful Bill Act, signed in July 2025—will help determine whether QCDs make sense as part of a taxpayer’s giving and tax strategy.
Why QCDs Are Still a Go-to Strategy in 2025
QCDs continue to stand out because they allow satisfaction of the RMD while removing the amount sent directly to charity from AGI. Why is that important? A higher AGI can quietly trigger a host of “stealth taxes,” including a higher tax on Social Security benefits, higher Medicare premiums, and a reduction in medical expense deductions, which are allowed only to the extent that they exceed 7.5% of AGI. By directing the distribution straight from an IRA to a qualified charity, the amount is excluded from taxable income but still counts toward the RMD. Those who don’t itemize retain the full benefit of the standard deduction and can make a meaningful charitable gift in a tax-efficient way.
Tax deduction bunching will continue to be an effective way for taxpayers to itemize in some years by “stacking up” charitable contributions made using cash or appreciated assets and in other years, using QCDs and taking the standard deduction. The OBBBA also introduced a new AGI floor for the deduction of charitable contributions, which are now only allowed to the extent that they exceed 0.5% of AGI. With the AGI floor taking effect beginning in 2026, bunching in 2025 becomes even more attractive as taxpayers can itemize more of their charitable contributions than they might in future years. Read more about bunching here.
After-Tax Assets and Legacy Planning
A thoughtful approach to legacy planning involves using IRA assets for charitable giving while preserving after-tax assets for heirs. Unlike IRAs, after-tax investment accounts generally receive a step-up in cost basis at the death of the owner. This means that heirs can sell inherited assets with little or no capital gains tax. In contrast, pre-tax IRA assets do not receive a step-up in basis, and distributions to heirs are taxed as ordinary income. By directing charitable gifts from an IRA and retaining after-tax assets for beneficiaries, individuals may enhance the overall tax efficiency of their estate plan. Read more about asset location for tax efficiency here.
New Rules on Reporting QCDs
Historically, with the exception of those due to death or taxes withheld, most IRA distributions—including QCDs—were reported the same way on Form 1099-R. It was up to the taxpayer to inform their tax preparer—and the IRS—that a portion of the distribution qualified as a QCD.
Beginning with 2025 tax filings, however, custodians are required to report QCDs separately using a new code (Code Y) in Box 7 of Form 1099-R. This change was designed to reduce confusion and improve compliance by clearly identifying charitable distributions on the tax form.
That said, implementation is still underway. Many custodians are actively developing processes and updating systems to meet this requirement, and approaches may vary in the early years. As such, it’s important not to rely solely on the tax form.
Even with Code Y in place, receiving a Form 1099-R marked as a QCD does not automatically mean the distribution qualifies for the QCD exemption. The responsibility remains with the taxpayer to ensure that the distribution meets all requirements, including that it was made directly from the IRA to a qualified charity and that the IRA owner was at least 70½ years old at the time of the distribution. Retaining supporting documentation, such as custodian confirmations and written acknowledgments from the charity, remains essential.
A Quick Word on Exceptions
For those with a concentrated stock position with significant unrealized gains, donating those shares directly to a qualified charity could be a better option than a QCD. This can help mitigate capital gains tax and may provide a valuable tax deduction, making it a smart strategy to consider alongside or instead of using QCDs.
Bottom Line
With the QCD limit now indexed for inflation annually and the standard deduction for seniors higher than ever, qualified charitable distributions are an even more powerful tool to make your retirement savings work harder and smarter for you.
Tax laws will continue to evolve, so it’s essential to review your strategy regularly with a trusted advisor. But for now, QCDs offer a prudent approach to philanthropy that can enhance your overall tax strategy.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
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