Why Qualified Charitable Distributions Are Worth Considering as Part of Your 2026 Financial Plan

The Qualified Charitable Distribution (QCD) has been around since 2007. The Tax Act of 2006 ushered in this unique provision that allows distributions from certain retirement accounts made directly to charities to escape the normal income tax on money taken out of a retirement plan. 20 years later, here are some of the most frequently asked questions we receive about QCDs:

How do QCDs work?

QCDs allow individuals to donate funds directly from their Traditional IRA, Inherited IRA accounts, and inactive Simplified Employee Pension Account (SEP) & Savings Incentive Match Plan for Employee Accounts (SIMPLE) to eligible charities. Other retirement accounts such as a 401(k) or 403(b) do not qualify. While conventional donations might only be deductible up to a certain percentage of adjusted gross income, a QCD may be omitted from taxable income altogether. This is particularly valuable for those who do not itemize deductions.

What are IRS rules for QCDs?

The IRS requires the individual to be at least 70 ½ years old at the time of the donation. Only funds withdrawn from the retirement accounts listed above are eligible. Roth IRAs typically do not apply unless they are inherited. The distribution must go directly from the retirement account to the charity. If funds are withdrawn and then donated, the IRS considers them a taxable income distribution.

QCDs can only be directed to certain types of charitable organizations, including public charities, certain private foundations, and other exempt organizations. Contributions to donor-advised funds, private non-operating foundations, and supporting organizations do not qualify. Individuals must document the QCD on their tax return using Form 1040. Eligible contributions will not be included as part of the donor's taxable income. However, the QCD amount must be reported on the IRA distributions line, but not the taxable amount.

What are the potential tax benefits of a QCD?

Individuals who do not typically itemize deductions can leverage this method to lower their adjusted gross income. The IRS requires retirees of a certain age (currently 73) to take Required Minimum Distributions (RMDs) from their qualified retirement portfolios, which can increase taxable income. QCDs reduce this taxable income because the distribution made to the charity is not included in taxable income, but can still meet the distribution requirement of the RMD.

In addition to the beneficial tax impact on RMDs, QCDs can impact tax bracket considerations and even potential surcharges on Medicare premiums. A benefit of making a QCD as part of your RMD is that your adjusted gross income (AGI) would be lowered since the QCD amount is not included in your income.

Do QCDs have annual contribution limits?

In 2026, a QCD permits an individual (and a spouse from a spouse’s own permissible accounts) to transfer up to $111,000 from one or multiple accounts to a qualified charity. So, a married couple may be eligible to direct up to a total of $222,000 in 2026 to a charity from their portfolio potentially reducing a significant income tax liability.

If an individual wishes to donate more than the $111,000 annual limit, they need to plan these contributions over multiple years. The tax impact of QCDs should be carefully evaluated, as contributions exceeding this limit cannot be carried over to future years. The IRS rules are strict about this annual cap to ensure donors maximize their financial benefits without breaching the established contribution limits.

Conclusion

If charitable giving is part of your financial plan, QCDs can further your philanthropic goals while helping to reduce the tax hit from your RMDs. In addition, by reducing AGI, retirees can potentially lower Medicare premiums and avoid higher tax brackets. If you have further questions or would like to discuss whether a QCD is right for your situation, please feel free to reach out.

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