America has long been the most charitable nation in the world. According to the World Giving Index, we held that title from 2009-2018.5 The pandemic lockdowns knocked us down to fifth, but 76% of Americans still helped a stranger, 61% donated to charity, and 38% donated time to a charitable organization. Charitable giving is so engrained in our society that we have incorporated it into the tax system. Taxpayers are able to list their charitable contribution as an itemized deduction, and deduct their contributions limited to 60% of adjusted gross income (AGI).2 Unfortunately, we find that clients often don’t give in the most efficient way possible – both charities and donors lose out.
One missed opportunity is taking taxable required minimum distributions (RMD) from retirement plans then making charitable distributions which are not deductible. Fortunately, in 2015, the IRS allowed individuals to transfer “tax free up to $100,000 to qualified charities.”3 In 2025, this amount is increased to $108,000.4 If you have not made your RMD for the year – you can instead donate the money you have already designated for charity and avoid paying taxes on the RMD.2 These up-to-$108,000 Qualified Charitable Distributions (QCDs) are a welcome workaround: it also allows you to avoid the 60% AGI limit.
It’s easier if you take your RMD and donate it in the earlier months of the year. This ensures that the money goes to charity with time to spare and you don’t have to worry about making your RMD (because you’ve already made it earlier in the year).
To make any QCDs, you have to be 70 years and six months old, and the organization you donate to has to be a registered 501(c)(3). QCDs are limited to quantities that would ordinarily be taxed as ordinary income (i.e. you cannot use after-tax contributions).2
Here is a list of qualified organizations as defined by the IRS.
Best practice is to take your RMD early and make the donation as a QCD. If you need assistance with making a charitable contribution from your RMD, please reach out to us. Treasure Coast Financial Planning is ready to help.
Happy New Year.
It is important to speak to a qualified tax professional to discuss your individual circumstance.
Sources
- https://www.investopedia.com/terms/c/charitabledonation.asp
- https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions
- https://www.irs.gov/newsroom/2015-tax-changes-include-key-benefits-renewed-a-new-way-to-save-for-retirement-new-accounts-for-people-with-disabilities-health-care-updates
- https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024
- https://worldpopulationreview.com/country-rankings/most-charitable-countries