A Familiar Habit
Every December, Frank sits down at his kitchen table with his checkbook and writes the same gift to the church he’s been a member of for thirty years. It’s a habit as familiar as the holidays themselves. What he didn’t always know was that how he wrote that check mattered just as much as the gift itself.
A Smarter Way to Give
Once you reach age 70½, you can make a Qualified Charitable Distribution, or QCD, which sends money directly from your IRA to an eligible charity instead of writing a check from your bank account. Most retirement savings are pre-tax dollars (think your 401(k) or a Traditional IRA). A QCD lets you support the causes close to your heart while sidestepping the tax bill that would otherwise come with that withdrawal.
It matters even more once you turn 73 (or 75, depending on your birth year). That’s when the IRS requires you to start taking money out of your retirement accounts each year, whether you need it or not. This amount is referred to as your Required Minimum Distribution (RMD), and it counts as taxable income. That extra income doesn’t just affect your tax bill; if your total income from sources like Social Security, a pension, and your RMD passes a certain threshold, you may also end up paying a higher premium for Medicare Part B and Part D. A QCD can help with both at once: it satisfies your RMD without adding to your income, which may reduce the chances of crossing that threshold.
A Tale of Two Gifts
Frank never knew any of this. Every December, he wrote his $5,000 check to the church straight from his savings, then took his $5,000 RMD separately, adding it to his taxable income for the year. Since he takes the standard deduction, none of that gift reduced his taxes.
His neighbor Carol, also 74, is in the 22% tax bracket and gives the same amount to her church at the end of the year, but does it differently. She has her $5,000 sent directly from her IRA to the church as a QCD. Because the money went straight to the church, it never counted as income for her — roughly $1,100 that stayed out of her tax bill — and she reduced the risk of it raising her Medicare premium down the road. Same gift, two very different outcomes.
Beyond QCDs
A QCD is just one of several ways thoughtful giving and smart tax planning can work together.
If you own stock that’s grown in value, donating it directly to charity lets you skip the capital gains tax you’d owe if you sold it first, while still giving the full value away.
A donor-advised fund lets you contribute now, take the tax deduction this year, and decide which charities to support later, on your own timeline.
And for some, combining several years of giving into one, sometimes called bunching, can push your deductions high enough to make itemizing worthwhile.
The right strategy depends on your situation, not a one-size-fits-all answer.
Whether you’re already giving this way or just learning it exists, let’s find the approach that fits you best.
Call (469) 621-1800 or scan the code below to start the conversation.
