Reducing RMDs With QCDs
For retirees who've accumulated significant savings in their tax-deferred accounts, the onset of required minimum distributions (RMDs) at age 73 can have serious tax consequences. That's because the higher the balance in your tax-deferred accounts, the higher your RMDs—and potentially your tax bracket.
If charitable giving is part of your financial plan, a qualified charitable distribution (QCD) can further your philanthropic goals and help reduce the tax hit from your RMD.
Charitable donations: Cash vs. QCD
Taking your full RMD and then donating cash could result in a higher tax bill than if you were to give through a QCD.
Scenario 1
Take full RMD and donate $35,000 in cash
Pension and Social Security Benefits: $50,000
RMD: + $110,000
QCD: $0
Adjusted gross income: = $160,000
Itemized deduction: – $35,000
Taxable income: = $125,000
Estimated taxes due: $22,847
Scenario 2
Donate $35,000 of RMD directly to charity using a QCD
Pension and Social Security Benefits: $50,000
RMD: + $110,000
QCD: – $35,000
Adjusted gross income: = $125,000
Standard deduction: – $17,000
Taxable income: = $108,000
Estimated taxes due: $18,767
Note: Illustration is for example purposes only and is not intended to be tax advice. Itemized deduction assumes the cash donation only and does not include other deductions. Tax calculations are estimated using 2025 federal tax brackets, do not reflect state taxes, and assume that 85% of Social Security benefits are taxable. In 2025, the standard deduction for a single filer age 65 and older is $17,000 ($15,000 standard deduction plus $2,000 additional standard deduction).
You don't necessarily want to give away money just to get a tax break. But if philanthropy is already part of your financial plan, a QCD can be a great way to optimize the tax benefits of giving. Your financial advisor and tax professional can help make sure your giving strategy aligns with your retirement goals as well as any changes to tax rules.