QCDs: The Simple Way to Give from Your IRA (and Cut Your Taxes)

If you're charitably inclined and over age 70 1⁄2, a Qualified Charitable Distribution (QCD) is one of the cleanest tax moves you can make.

A QCD lets you send money directly from your IRA to a charity, count it toward your required minimum distribution (RMD), and keep that income off your tax return. That combination can lower stealth taxes, reduce Medicare premiums, and help even if you don't itemize deductions. 

Below is a guide to QCDs, including what they are, who can use them, the amount you can give, and how to obtain them correctly.

What is a QCD?

A QCD is a direct transfer from your IRA to an eligible charity. When done correctly, the amount counts toward your RMD but is excluded from income; you don't take a charitable deduction, and you don't report the income in the first place. That's usually better than a Schedule A deduction because it keeps your AGI lower, which can unlock other AGI-based benefits. 

Why QCDs often beat "write-a-check" giving

Because the QCD keeps the income off your return, it can:

• Reduce "stealth taxes" tied to income levels (e.g., how much Social Security is taxed),
• Potentially lower or avoid Income Related Monthly Adjustment Amounts (IRMAA) that are added to your Medicare premiums, as your income increases,
• Help taxpayers who take the standard deduction,
• Benefit those whose charitable deduction would otherwise be limited,

And even

• Improve other deductions (e.g., medical expenses) and QBI eligibility in some instances. 

In short, a QCD almost always saves taxes; it never raises them. 

Who can do a QCD (and from which accounts)?

To qualify, you must be age 70 1⁄2 or older, and the gift must come from an IRA (traditional or Roth) or inactive SEP/SIMPLE IRA, not from a current employer plan. The transfer must go directly from the IRA to the charity. Donor-advised funds (DAFs) and private foundations don't qualify. 

Note: QCDs apply only to taxable amounts. For Roth IRAs, typically only taxable dollars qualify; Qualified Charitable Distributions (QCDs) are an exception to the normal pro-rata rule. 

How much can you give?

• The QCD annual limit is $115,000 per person for 2026, indexed for inflation in the future. A married couple where each spouse can each do up to $115,000 from their own IRAs. There's no carryover if you give more than the limit; the excess is taxable income (though you may deduct it if you itemize). 
• SECURE 2.0 also created a one-time option (2025 amount $54,000) to send a QCD to a split-interest vehicle (e.g., CRT/CRUT/CGA). DAFs still do not qualify. 

Critical timing rule: "First dollars out"

Once you're subject to RMDs, the first dollars withdrawn in a year are treated as your RMD. To have the RMD excluded from income via a QCD, the QCD must happen before you take any RMD money into your own hands. If you take your RMD first and then do a QCD later, you can't retroactively fix it; the RMD you have already taken is taxable. 

That's why "January is the new December": aim to do QCDs early in the year.  

Example: Salvatore takes his RMD in February and later decides to do a QCD. He can still make a QCD, but it won't satisfy the RMD he already took; that February payout remains taxable.  

What charities qualify, and what documentation do you need

• The charity must be eligible to receive tax-deductible contributions, and you can't receive anything of value in return (no gala seats, quid pro quo benefits, or tickets).  
• You need a contemporaneous written acknowledgment (CWA) from the charity, just like other charitable gifts.  

QCDs may also satisfy a pledge without causing problems. 

Do you need help with QCD? We can help you properly plan your charitable giving and plan towards your retirement from PG&E. Plan a meeting today!!

How QCDs interact with your tax return (and new 1099-R code)

You don't claim a charitable deduction for a QCD. Instead, the transferred amount is excluded from income and still counts toward your RMD. That keeps your AGI lower, which, as noted, can cascade across other tax items. 

Reporting update for 2025: The IRS has added a new Box 7 code, "Y", on Form 1099-R to identify QCDs (paired with other codes depending on whether it's a normal, inherited, or difficult-to-value asset distribution). Previously, there was no dedicated code, which caused missed QCD treatment. The new code should improve accuracy; however, custodians may still face practical challenges in validating charity eligibility and tracking annual limits. 

Common mistakes to avoid

1. Taking the RMD first. Remember the first dollar-out rule: QCD must occur before any taxable RMD is deposited into your bank account. Taking the QCD first is essential if your goal is not to take any more out than is required.
2. Writing a personal check. The transfer must be direct from the IRA to the charity (trustee-to-charity).  
3. Using the wrong account. QCDs are from IRAs, not employer plans; DAFs/private foundations don't qualify.  
4. Expecting a deduction. You don't take one; the income exclusion is the benefit.  
5. Donating from a Roth IRA. While possible, it's usually better to QCD from traditional IRA dollars (you get more tax mileage).  
6. Over the limit. No carryover beyond $115000 (2026); excess is taxable (though possibly deductible if you itemize).

Step-by-step: How to do a QCD the right way

1. Confirm eligibility: You are 70½ or older and have an IRA eligible for QCDs. 
2. Choose the charity: Must be eligible; no benefits in return. Get their legal name, EIN, and mailing instructions. 
3. Request a direct transfer from your IRA custodian to the charity (trustee-to-charity). Avoid personal receipt of funds. Custodians can send a check to you for hand delivery, and make sure the check is issued to the charity.
4. Do it early in the year to ensure it counts against your RMD and stay excluded from income. 
5. Get the CWA receipt from the charity and keep it with your tax records.  
6. Watch the annual limit: $115,000 per person in 2026 (indexed in future years). Couples can each do their own QCD.  
7. Coordinate with your preparer: Look for the new 1099-R code 'Y' and confirm that the return treatment shows the exclusion, not a deduction. 

Estate planning angle

Many heirs must drain inherited IRAs within 10 years and pay ordinary income tax on those dollars. Using QCDs while you are alive shrinks taxable IRA dollars efficiently and directs money to causes you care about, tax-free. 

Quick example

You're 75 with a $20,000 RMD, and you plan to give $10,000 to charity this year.

• If you write a personal check, you'll report $20,000 of income and claim a $10,000 deduction, which is helpful only if you itemize (and is subject to limits).
• If you instead do a $10,000 QCD (direct IRA-to-charity) before taking anything else, only $10,000 of the RMD remains to be taken and reported. Your AGI is $10,000 lower than in the first path, which can reduce Social Security taxation and IRMAA exposure. 

Give and receive

For donors aged 70½ and older, QCDs are a powerful, low-friction way to give that satisfies your RMD, keeps income off your tax return. This often creates larger overall tax savings than writing checks, especially if you don't itemize. Just make sure the gift is directly from the IRA, completed before taking any RMD personally, and properly documented. If done correctly, you exclude the QCD amount from your income altogether. This is a huge benefit for PG&E benefits, and a way to give back to the community too. 

If all this is overwhelming, we are here to help. At Powering Your Retirement, we focus on the unique retirement needs of PG&E employees. Whether you’re building your 401(k), considering pension options, or preparing for Roth conversions, we’re here to simplify your finances. Reach out to us today !