By Karen Hube

Making a charitable gift from an individual retirement account (IRA) is now one of the most powerful tax-savings strategies available to older investors, thanks to new rules effective this year.

The One Big Beautiful Bill Act, passed last year, imposed new limits to the deductibility of charitable gifts for those who itemize their deductions.

These changes are putting the spotlight on qualified charitable distributions (QCDs), which are gifts of IRA assets, because they circumvent the new rules.

"QCDs are the only real way to effectively get a dollar-for-dollar deduction for charitable giving for taxpayers who itemize," says Robert Westley, regional wealth advisor at Northern Trust.

New limits on charitable deductions

While previously charitable gifts were fully deductible for those who itemize, under the tax law there are now two new limits: Gifts are only deductible to the extent that they exceed 0.5% of adjusted gross income, and the tax benefit of deductions is capped at 35%.

The combination of these two limits can significantly reduce the tax benefit of a charitable deduction, and even more so for people in the 37% tax bracket, says Mark Parthemer, chief wealth strategist at Glenmede.

Consider a 74-year-old couple with $800,000 in annual adjusted gross income who makes a $20,000 charitable gift. The couple files a joint return and is in the 37% tax bracket.

Under old rules, their tax savings after claiming a deduction would have been $7,400.

But the new 0.5% floor reduces the deductible amount of the gift by $4,000 to $16,000, and the 35% cap reduces the tax benefit of the deduction to 35 cents of each dollar from 37 cents.

After those haircuts, their tax savings this year would be $5,600.

For a couple with lower income and a lower tax bracket, the 35% cap isn't a concern, but the 0.5% hurdle is: With income of $200,000 and a charitable gift of $2,000, only half of the gift -- $1,000 -- would be an itemized deduction.

QCDs are powerful tools

Enter the QCD.

While individuals who are at least age 70 1/2 can gift using QCDs, the gifting tools are typically used starting at age 73 to manage the tax consequences of mandatory withdrawals from IRAs.

Investors must begin taking required minimum distributions (RMDs) from IRAs beginning at age 73. The distributions are added to adjusted gross income and are subject to income-tax rates of up to 37%.

For people who don't need their IRA assets to live on and want to give to charity, a QCD is a valuable tool: "It can satisfy your RMD and the gifted assets do not get counted in your adjusted gross income," says Tara Popernik, head of wealth planning at LPL Financial.

While you don't claim a tax deduction for a QCD, by not including the gift in taxable income you effectively get a full deduction.

With new limits on the deductibility of charitable gifts, QCDs pack an even bigger punch, because they provide a full effective deduction.

"The bill rewrote the math on charitable giving," says Kevin Knull, chief executive officer of TaxStatus. "This is a massive change and the QCD should be looked at by anyone who is charitably inclined."

There may be secondary benefits to a QCD, too. By not including your RMD in your taxable income, you may avoid phasing out of income sensitive tax credits or higher Medicare premiums, Westley says.

There are rigid rules and nuances when it comes to using a QCD, however, so attention to detail is a must.

Brush up on QCD rules

This year, taxpayers can give up to $111,000 through a QCD. If you have multiple IRAs, you can give piecemeal from more than one IRA but the total annual amount given for an individual cannot exceed $111,000.

Couples can each give up to the maximum, assuming they each have their own IRAs, for a total $222,000.

To count as a QCD, a gift must go directly from your IRA to a charity. "It can't go to you first," Knull says. "If you receive it first, it will be taxed."

Your gift must go to a charity, not a donor-advised fund or a private foundation, and the transfer must be complete by the end of the year. If the gift is initiated on Dec. 31 and not received until after the new year, it doesn't count as a QCD.

For your gift from your IRA to be excluded from your income, you may not receive anything in return from the charity, says Jere Doyle, senior estate planning strategist at BNY Wealth.

"If I make a gift as a QCD, and the charity gives me tickets to the Super Bowl, I can't take the QCD at all because I got a benefit," Doyle says. "The QCD would be considered by the IRS as a distribution, and it would be taxable."

Why consider a QCD before RMDs?

QCDs are powerful tools because they count toward RMDs, but these gifts can be made as early as age 70 1/2 even though RMDs aren't required until age 73.

Why consider a QCD between the ages of 70 1/2 and 73?

Generally, advisors recommend giving highly appreciated securities instead of a QCD during those years to avoid having to ever pay taxes on the capital gains.

But an early QCD can be a good option for people who want to minimize future RMDs, says Julia Chu, head of philanthropy and family governance advisory at Neuberger Berman. "The more you siphon out today, the more you reduce your IRA and future corresponding RMDs.

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May 09, 2026 04:00 ET (08:00 GMT)

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