Introduction
In 2025, one of the best ways to reduce your taxes and support charitable causes is by learning how to make tax-free donations from an IRA. A Qualified Charitable Distribution (QCD) allows individuals aged 70½ or older to donate directly from their IRA to a qualified charity. By using this method, you avoid paying taxes on the distribution. In this article, we’ll show you how to make tax-free donations from an IRA, the benefits of doing so, and the steps you need to follow.
What Is a Qualified Charitable Distribution (QCD)?
A Qualified Charitable Distribution (QCD) is a donation made directly from your IRA to a qualified charity. The key benefit of a QCD is that it is not included in your taxable income. Typically, if you withdraw money from your IRA, you must pay taxes on it. But if you donate the funds directly to charity through a QCD, the distribution is tax-free.
If you’re 70½ or older, a QCD is a great way to satisfy your Required Minimum Distribution (RMD). Your RMD is the amount you must withdraw from your IRA once you reach age 70½. By donating the RMD amount to charity via a QCD, you avoid paying taxes on it.
Who Can Make Tax-Free Donations from an IRA?
You must meet specific requirements to make tax-free donations through a QCD:
- Age Requirement: You need to be at least 70½ years old to use a QCD. This rule applies to both traditional and Roth IRAs.
- Eligible IRA Accounts: QCDs can only be made from traditional IRAs. You cannot make a QCD from a Roth IRA, although there are other charitable giving options available for Roth IRA holders.
- Qualified Charities: The charity must be a 501(c)(3) organization. Eligible charities include schools, hospitals, and churches. Donor-advised funds and private foundations do not qualify for QCD donations.
- Donation Limits: In 2025, you can donate up to $100,000 per year from your IRA. If you are married, you and your spouse can each donate $100,000, totaling $200,000 in donations.
Benefits of Making Tax-Free Donations from an IRA
Making tax-free donations from your IRA has several benefits, particularly in 2025:
- Lower Your Taxable Income: A QCD reduces your taxable income since it is not included in your total income. This could lower your tax bill.
- Satisfy Your Required Minimum Distribution (RMD): If you must take an RMD from your IRA, you can use a QCD to meet this requirement. This allows you to donate the funds instead of taking them as income, which reduces your taxable income.
- Avoid Capital Gains Taxes: If your IRA holds appreciated assets, such as stocks, withdrawing and donating them usually triggers capital gains taxes. However, QCDs are exempt from capital gains taxes, making them a tax-efficient option.
- Increase Your Charitable Giving: Because QCDs reduce your taxable income, you may be able to donate more money than you would otherwise afford. This allows you to make a larger impact on the causes you care about.
How to Make Tax-Free Donations from an IRA
Follow these simple steps to make tax-free donations from your IRA in 2025:
- Ensure You Qualify: Confirm that you are at least 70½ years old and have a traditional IRA. Also, check that the charity is a qualified 501(c)(3) organization.
- Contact Your IRA Custodian: Get in touch with the financial institution holding your IRA. Let them know you want to make a QCD. They will assist you with the process.
- Decide How Much to Donate: You can donate up to $100,000 from your IRA each year. If you’re married, both you and your spouse can donate $100,000 each, making the total possible donation $200,000.
- Request a Direct Transfer: To ensure the donation qualifies as a QCD, ask your IRA custodian to send the funds directly to the charity. If the funds are sent to you first, you will need to pay taxes on the distribution.
- Keep the Documentation: After the donation, ask the charity for a receipt. The IRS requires you to have proof of your donation. The charity should provide a statement showing no goods or services were exchanged for the gift.
Key Considerations When Donating from an IRA
- RMD Fulfillment: A QCD can satisfy your Required Minimum Distribution (RMD). If you do not take your RMD, you could face penalties. Using a QCD to fulfill the RMD helps you avoid these penalties.
- Tax Reporting: When filing taxes, ensure you report the QCD correctly. Your IRA custodian will send you a Form 1099-R showing the distribution. Be sure to indicate that it was a QCD, so it is excluded from your taxable income.
- Charity Eligibility: Before donating, confirm that the charity is eligible to receive QCDs. Private foundations and donor-advised funds do not qualify.
Conclusion
In 2025, making tax-free donations from your IRA is a powerful way to reduce taxes while supporting charitable causes. By using a Qualified Charitable Distribution (QCD), you can donate directly from your IRA to a qualified charity without paying taxes on the distribution. This method helps you meet your Required Minimum Distribution (RMD), lowers your taxable income, and allows you to donate more. Follow the steps outlined in this article to make tax-free donations from your IRA and maximize the impact of your charitable giving.
