Giving to a cause you care about—with the additional bonus of reaping tax benefits from it— can be a powerful combination. In certain circumstances, an Individual Retirement Account (IRA) offers the opportunity to use funds by gifting them directly to a charitable organization.
Distributions out of your IRA are taxed as ordinary income. If you wanted to gift to charity, you’d have to take a distribution, pay taxes and then give the remainder. However, the IRS allows what is called a qualified charitable distribution (QCD) which allows an individual age 70½ or older to gift to charity directly out of their IRA and avoid income taxes on the dollars gifted.
Gifting to a Charity
For those individuals, a qualified charitable distribution serves as a tax-efficient way to donate directly from an IRA.
The QCD provision allows IRA owners to direct a certain amount annually, currently $108,000, to one or more qualified charities directly from their IRA without counting the distribution as taxable income. This is especially beneficial for those who are taking required minimum distributions (RMDs). Upon reaching a certain age, determined by your birth year, the IRS requires you to begin taking a minimum amount from the account each year—whether you need the money or not.
Instead of recognizing income from these distributions, which could push someone into a higher tax bracket or reduce other tax benefits, the amount of the QCD is excluded from taxable income. For married couples, each spouse can make a QCD of up to $108,000 in 2025 from their individual IRAs, making this an even more powerful tool for those who are charitably inclined.
The QCD is an option for individuals with IRAs and inherited IRAs (with proper reporting). In limited circumstances SEPs or SIMPLE IRAs can be eligible to make a QCD. If you are taking a distribution from a qualified retirement plan, such as a 401(k) or 403(b), the QCD is not an option.
Making a qualified charitable distribution is a fairly straightforward process and must be made directly from the IRA to the charity, which must be a qualified 501(c)(3) organization that is eligible to receive tax-deductible contributions. Donor-advised funds and private foundations do not qualify for QCDs. Once the check is issued, the amount will not be included in your taxable income for the year, and if you are subject to RMDs, the QCD will count toward that requirement. To find a tax-exempt organization, visit the IRS website at https://apps.irs.gov/app/eos.
If you are charitably inclined and older than age 70½, consider making your gifts out of your IRA to decrease your tax burden and ensure more dollars go to making an impact in the charity of your choosing!
As always, consulting with your tax and/or financial advisors is recommended to ensure you are maximizing tax benefits and coordinating the timing of donations. To find a Busey Wealth Management advisor near you, visit busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.