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 or 75—depending on your birth year—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. Let's look at an example of when a QCD could make sense. Say you're 75 years old and single, and you need $200,000 in income this year to cover your living expenses. Your RMD for the year is $150,000 and you'll receive another $75,000 of other taxable income from interest, dividends, pension and Social Security—pushing your total taxable income to $225,000. That leaves you with an additional $25,000 of income that you don't need to provide for your living expenses.
If you're charitably inclined, you could donate the excess cash to your favorite charity and write-off the amount on your tax return. But by using a QCD to transfer the $25,000 directly to a charitable organization, you would reduce your taxable income by $19,275.
Scenario 1
Take full RMD and donate $25,000 in cash
Other taxable income: $75,000
RMD: + $150,000
QCD: $0
Adjusted gross income: = $225,000
Itemized deduction: – $23,875
Taxable income: = $201,125
Scenario 2
Donate $25,000 of RMD directly to charity using a QCD
Other taxable income: $75,000
RMD: + $150,000
QCD: – $25,000
Adjusted gross income: = $200,000
Standard deduction: – $18,150
Taxable income: = $181,850
Note: This hypothetical example is only for illustrative purposes. The estimated tax impact and discussions herein are not intended as tax advice.
For scenario 1, itemized deduction assumes the cash donation only and also applies the 0.05% floor in charitable donations. No other itemized deductions are included.
For scenario 2, the standard deduction in 2026 for a single filer age 65 or older is $18,150 ($16,100 standard deduction plus $2,050 additional standard deduction). The temporary senior tax deduction does not apply due to the income phase out limits, and the charitable giving deduction cannot be taken because the donation was made through a QCD, not cash.
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.