In 2015, Americans donated $373.25 billion to charity, setting a national record. Giving to meaningful organizations and causes just seems to be a proud American tradition; according to Patrick M. Rooney at the Indiana University Lilly Family School of Philanthropy, more Americans give to charity than vote.

That being the case, we’re sure that your generosity won’t end with retirement. But once you’re no longer working, you’ll have the opportunity to change the way that you give. Will you continue to donate after-tax cash and write it off as a deduction? Or will you take advantage of a recent permanent addition to the IRS code called a Qualified Charitable Distribution, or QCD?

Simply put, a QCD is a withdrawal from an IRA donated directly to a charitable organization. Let’s take some time to look at an example, the requirements, and benefits of a QCD.

An Example

Let’s say you have $100, you are in a 20% tax bracket and would like to make a $75 donation to charity. You pay your $20 taxes first which leaves you with $80. You then make a $75 donation after which you’re left with $5.

Let’s try that again, but this time, you make your $75 donation to your charity first, leaving you with $25. You then pay 20% taxes on that $25—which this time is only $5—in taxes. This time you’re left with $20.

See the difference?

Put another way, let’s say that you are 71, you are in a 20% tax bracket, you have a $10,000 Required Minimum Distribution (RMD) for this year, and you would like to make a $7,500 donation to your church, university, or local hospital. Similar to the example above, you have two options. The traditional way would be to receive your RMD as taxable income and pay $2,000 in taxes, then make your $7,500 donation and have $500 left over. Your second option is to use a QCD to make your $7,500 donation directly from your IRA and then receive the remaining $2,500 as taxable income. Then pay your $500 income tax, leaving you with $2,000 left over. In either example, your charity is happy because they received your donation and the IRS is happy because you paid your 20% tax. But in the second example, you came out with four times the money. That is a win, win, win!


A QCD is actually pretty straightforward. The requirements are as follows:

  • You must be 70.5 years old at the time of distribution.

  • Distribution can only come from your IRA. Your 401k and 403b are not eligible.

  • You can donate up to $100,000 per year.

  • Distributions are due by December 31.

  • Distributions must be made directly to the named charity.

For more information on requirements, visit


Because the QCD is not counted as taxable income, the benefits are far-reaching. Not only will you pay less tax because you are taking less as income, but you might also pay less tax on a smaller percentage of your Social Security income and reduce your Medicare premiums.

1. Social Security Tax Savings

Did you know that as much as 85% of your Social Security income can be taxed? The IRS looks at your income outside of your Social Security benefit to determine how much they will tax you. And because a distribution from your IRA using a QCD does not add to your Adjusted Gross Income (or AGI), you can reduce how much your Social Security check is taxed.

Your AGI is used as part of the calculation to determine what percentage of your Social Security benefit you’ll pay taxes on. This is determined by using a number the IRS calls your “Provisional Income.” They determine your provisional income like so:

AGI – Social Security benefits + nontaxable interest + half of your Social Security benefit

When your Provisional Income is close to predetermined benchmarks, as little as $1 of extra income could cost you hundreds in taxes. For example, if a couple files jointly with a Provisional Income of $44,000 with a Social Security benefit of $25,000, then 85% of their Social Security benefit will be taxed. If they are in a 20% tax bracket, the tax owed would be $4,250 (25,000 x 85% x 20%). Yet if they reduced their Provisional Income to 39,999, only 50% of their Social Security benefit would be taxed. And if they are in a 20% tax bracket, the tax owed would be $2,500 (25,00 x 50% x 20%). That’s a difference of $1,750.

Your tax professional will be able to show you the impact that choosing to use a QCD would have on your personal Social Security benefits.

2. Reduced Medicare Premiums

Similar to Social Security Income, your Medicare premiums are determined by your income level. Medicare uses your Modified Adjusted Gross Income, or MAGI, to determine your increased premium. These increased premiums were created for high-income earners and start at $85k+ (for single) or $170k+ (for married filing jointly). At that point, the Medicare premium increases from the standard $109/month ($134/month for new enrollees) to $187.50–428.60/month on a tiered scale.

For example, if a newly enrolled individual who is married files jointly and has a MAGI of less than $171k/year, he or she will pay a total of $1,608 ($134 x 12) for the annual Medicare premium. If, however, the MAGI increases above $171k/year, then each spouse is now paying $2,245.20/year.

The QCD is a great way to avoid paying that increased premium. When you use a QCD instead of an RMD, it is not added to your MAGI. If you are close to an income tier, QCD distributions could save you thousands of dollars in increased Medicare premiums.

Your retirement years should be rewarding and full of many opportunities to give to those causes and charities that you care most about. As you give, will you choose to use after-tax dollars or decide to use a Qualified Charitable Distribution? If you’re doing it for the first time, you’ll want to make sure you’re doing it right. Find a financial advisor to lead you through it. Giving is one American tradition we can all agree on.