Qualified Charitable Distributions: How to Use Your IRA to Make Tax-Efficient Charitable Gifts
If you are an IRA owner and you plan on making significant charitable contributions this year,
you may want to consider utilizing a tax-efficient strategy called a Qualified Charitable
Distribution, or “QCD.” A QCD allows IRA owners aged 70 1⁄2 or older to distribute money
directly from their IRA to a qualified charity without paying income tax on the distribution.
Individuals can make up to $100,000 each year in tax-free QCDs from all of their IRAs; for
those who are married, each spouse may make QCDs of up to $100,000 each.
If you are 72 or older, a significant benefit of a QCD is that it can be applied toward satisfying
your Required Minimum Distribution (“RMD”) for that year. If you take your RMD as income,
the distribution will be taxed as ordinary income. However, if you make a QCD from your IRA,
the amount of the QCD is considered a nontaxable transfer, thereby reducing your adjusted gross
income. Reducing your adjusted gross income for the year may provide additional tax benefits,
such as reducing your Medicare premiums or lowering the amount of taxes owed on your Social
Security benefits. Keep in mind, however, that the charitable distribution must be made prior to
completing your RMD in order for it to be considered a nontaxable qualified charitable
In recent years, most taxpayers have taken the standard deduction rather than itemizing
deductions. This is due to recent legislation that eliminated or drastically reduced many itemized
deductions, as well as increases in the standard deduction amounts in 2022, these amounts are
$28,700 for joint filers age 65 or older and $14,700 for single filers age 65 or older. Unless your
total allowed itemized deductions exceeds the standard deduction amounts, you will take the
larger standard deduction amount.
For those who take the standard deduction, charitable contributions are limited to a deduction of
$600 for joint returns and $300 for single filers, provided Congress renews this deduction for
2022. So, for anyone that is 70 1⁄2 or older and charitably inclined, a QCD is a useful way to
preserve an income-tax-reducing charitable deduction.
If you are a Transform Wealth Client and would like to make a Qualified Charitable Distribution,
please contact your Transform Wealth Financial Advisor.
You should consult your tax advisor to see if the Qualified Charitable Distribution strategy
would benefit you, and to ensure any QCDs are reported accurately, as Transform Wealth does
not provide tax, legal, or accounting advice. In considering this material, you should discuss
your individual circumstances with professionals in those areas before making any decisions.
Bob Campbell, CFP®, Clarissa Hobson, CFP® and Sara Kohr, CFP®
This document is for informational purposes only. It is educational in nature and should not be considered a recommendation of
Transform Wealth’s investment management and financial planning services, strategy or any particular product in any
jurisdiction. Your investment goals and objectives are unique so you are encouraged to consult with an investment professional
before making any investment decisions.