Page 1: What Are QCDs and RMDs?
If you’re 73 or older, you may have heard of RMDs. That stands for Required Minimum Distributions. These are the minimum amounts you must take out each year from your retirement accounts, like a traditional IRA or 401(k).
When you take out your RMD, that money is taxed. It adds to your income and can push you into a higher tax bracket. That means you might owe more money to the IRS.
But there’s good news. You can use something called a QCD, or Qualified Charitable Distribution, to help lower your tax bill.
Using QCDs to reduce your RMD tax liability is one of the smartest tax-saving strategies available in 2025. A QCD lets you give money from your IRA directly to a charity. If you do this, that money doesn’t count as taxable income, even though it still satisfies your RMD.
This means you can give to a good cause and avoid paying taxes on that part of your RMD.
Page 2: How QCDs Work (And Why They’re Powerful)
Let’s walk through how using QCDs to reduce your RMD tax liability actually works.
Imagine you’re 75 years old, and your RMD for 2025 is $20,000. If you take out all $20,000 as a regular withdrawal, that full amount is added to your taxable income. Depending on your tax bracket, this could mean paying thousands of dollars in extra taxes.
But what if you give $10,000 of that RMD directly to a charity using a QCD? That $10,000 does not count as income. It still counts toward your RMD, but it doesn’t raise your tax bill.
Here are some key rules to follow:
- You must be at least 70½ years old to make a QCD.
- You can give up to $100,000 each year through QCDs (indexed for inflation starting in 2024).
- The money must go directly from your IRA to the charity. You can’t take it out and then write a check.
- The charity must be a qualified 501(c)(3) organization. No private foundations or donor-advised funds.
By using QCDs to reduce your RMD tax liability, you can lower your income, possibly avoid paying higher Medicare premiums, and even stay in a lower tax bracket.
Page 3: Real Benefits and How to Get Started
Let’s look at a simple example:
Linda is 74. She needs to take a $15,000 RMD in 2025. But she doesn’t need the money and wants to support her local food bank. She uses a QCD to donate $15,000 directly from her IRA to the charity. That donation satisfies her full RMD and reduces her taxable income by $15,000.
No taxes owed on the money. Her adjusted gross income (AGI) is lower, which may help her pay less for Medicare, avoid the 3.8% Net Investment Income Tax, and stay out of a higher tax bracket.
This is why using QCDs to reduce your RMD tax liability is becoming more popular, especially in 2025, as more retirees look for ways to cut back on taxes while giving back to causes they love.
Getting Started
Here’s how you can start:
- Talk to your IRA custodian. Ask if they support QCDs and what paperwork is needed.
- Pick a qualified charity. Make sure it’s a 501(c)(3) and accepts direct transfers.
- Start early in the year. Don’t wait until December; processing can take time.
- Keep records. You’ll need proof for your taxes that the money went directly to the charity.
Remember: even if you don’t itemize deductions, you still get the tax benefit, because QCDs reduce your taxable income directly.
Final Thoughts
Using QCDs to reduce your RMD tax liability in 2025 is a simple and powerful strategy. It helps you meet your IRS rules, lower your taxes, and support causes you care about, all at once.
If you’re over 70½ and taking RMDs, talk to a tax advisor or financial planner. They can help you use QCDs in a smart way. Saving money while doing good? That’s a win-win.
