Commentary · Tax Strategy
The IRA Gift That Can Stay Out of Taxable Income
Written by the William Allan team · Published
Charitable giving often starts with a deduction question.
You write a check. You ask what can be deducted, whether itemizing makes sense, and how the gift fits the rest of your tax picture.
For people who give and have a traditional IRA, there is another route worth comparing: a qualified charitable distribution, or QCD. It can keep an eligible IRA withdrawal out of federal taxable income. It still belongs on the tax return.
What it actually is
A QCD is an otherwise taxable distribution paid directly from an eligible IRA to an eligible charity. You must be at least age 70½ when the distribution is made. Ongoing SEP and SIMPLE IRAs do not qualify. An eligible QCD can satisfy some or all of an IRA required minimum distribution, or RMD. IRS IRA FAQs
For 2026, the annual exclusion limit is $111,000 per person. It applies across your QCDs for the year, not separately to each IRA. Eligible spouses can each use their own limit from their own IRAs. The 2026 amount is confirmed in IRS Notice 2025-67.
You cannot also claim a charitable deduction for the amount excluded from income. The tax benefit is the exclusion, not a second deduction. IRS Publication 590-B
The distribution is reported on Form 1099-R and on your federal return. The qualifying amount is excluded when calculating the taxable portion of the IRA distribution. Give your preparer the transfer records and charity acknowledgment, and follow the reporting instructions for the applicable tax year. IRS QCD reporting guidance
Why the income number matters
The taxable portion of a traditional IRA RMD is ordinary income and increases adjusted gross income, or AGI. If an IRA contains nondeductible contributions, part of a withdrawal may instead be a tax-free return of basis. IRS RMD FAQs
Additional taxable IRA income can increase the share of Social Security benefits subject to federal income tax. That calculation considers other income, tax-exempt interest, and half of Social Security benefits. The effect depends on the household's circumstances. IRS Social Security tax guidance
Higher income can also increase Medicare Part B and Part D premiums through IRMAA. Social Security generally uses tax information from two years earlier. For this purpose, modified AGI is generally AGI plus tax-exempt interest. A QCD may help with those income thresholds, but it does not guarantee lower premiums. Social Security Medicare premium guidance, Social Security MAGI definition
A charitable check written after a taxable IRA withdrawal does not reverse the income from that withdrawal. But it is no longer accurate to say a cash gift only helps if you itemize. Beginning in 2026, eligible cash gifts may qualify for a deduction of up to $1,000, or $2,000 for married couples filing jointly, even when taking the standard deduction. IRS Topic 506
Itemizers generally face a new 0.5%-of-AGI floor on charitable deductions for 2026, along with other applicable limits. These charitable deductions reduce taxable income after AGI; an eligible QCD excludes the qualifying IRA amount from income itself. That is why the two approaches can produce different results. IRS Publication 505 for 2026
The age that confuses people
QCD eligibility begins at 70½. An IRA owner's required withdrawals generally begin later, at the applicable RMD age under current law. These are separate rules. A person may be eligible to make a QCD before required withdrawals begin. The fact that a gift is available does not, by itself, make it the right funding choice. IRS IRA FAQs, IRS RMD FAQs
What has to be true
The transfer must meet the direct-payment requirement. If the IRA distribution is paid to you and you then write a personal check, that later gift is not a QCD. A custodian check payable to the charity may qualify even if you deliver it. IRS Notice 2007-7, Q&A 41
Not every organization that accepts deductible gifts is QCD-eligible. Donor-advised funds and supporting organizations are excluded. Private nonoperating foundations generally do not qualify. For the outright gifts discussed here, you must not receive goods or services in return. Confirm the recipient's status before arranging payment. IRS Notice 2007-7, Q&A 35 and 39
You need the charity's acknowledgment and the records required to substantiate the gift. For gifts of $250 or more, obtain a contemporaneous written acknowledgment, including whether the charity provided goods or services. IRS Topic 506
There is also a less familiar limit. IRA contributions deducted for tax years after 2019 in which you were age 70½ or older at year-end can reduce or eliminate the QCD exclusion. Unused amounts from earlier years can still affect the calculation. Have your preparer check the adjustment worksheet if you continued making deductible contributions. IRS Publication 590-B
If your IRA has basis from nondeductible contributions, the QCD rules generally draw from otherwise taxable amounts first. That can leave basis for other distributions. Keep the basis records rather than assuming every dollar in the IRA has the same treatment. IRS Publication 590-B
The questions that actually decide it
- Are you at least 70½, and do you have an eligible IRA?
- Is this a gift you already intend to make, and does the charity qualify?
- How would a QCD compare with using cash or other assets in your circumstances?
- Have deductible IRA contributions after age 70½ affected your available exclusion?
- If you have an RMD, how much has already been paid to you?
A later QCD does not turn an RMD already paid to you into a tax-free charitable transfer. RMD amounts cannot be rolled over. You may still make a separate eligible QCD, but it does not erase the taxable withdrawal already received. IRS RMD FAQs
What we would tell a friend
Before writing another charitable check, ask whether the IRA should be part of the conversation.
Have a qualified tax professional compare the routes, check the charity, and review any IRA basis or deductible-contribution history. Then coordinate the transfer with the custodian and leave time for it to be completed in the intended calendar year.
The useful question is not whether a QCD is always better. It is whether it fits the gift you want to make and the income picture you actually have.
This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. QCD eligibility, limits, reporting, and interaction with required minimum distributions depend on individual circumstances and current law. This discussion addresses federal income tax rules; state treatment may differ. William Allan does not provide tax advice. Consult a qualified tax professional regarding your situation. William Allan is an investment adviser registered with the SEC; registration does not imply any specific level of skill or training.