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QCDs and RMDs: A Smart Combo

1. Core Concept: Why QCDs + RMDs Matter

Qualified Charitable Distributions (QCDs) and Required Minimum Distributions (RMDs) are powerful when used together because they:

• Allow clients to satisfy RMD requirements
• Avoid recognizing taxable income
• Reduce Adjusted Gross Income (AGI)—a key driver of many tax calculations 

Larry Pon emphasized that many retirement planning problems today are not investment-related—but tax and distribution-related, especially once RMDs begin. 

2. Key Rules for QCDs (Updated and Clarified)

Eligibility

• Must be age 70½ or older (this did NOT change under SECURE Acts)
• Must come from an IRA (not 401(k), SEP, or SIMPLE IRAs)
• Can be done from inherited IRAs if the beneficiary meets the age requirement 

Mechanics

• Funds must go directly from the IRA to the charity
• If the client receives the funds first → it becomes taxable 

Limits

• 2025: ~$108,000
• 2026: ~$111,000 (indexed for inflation)  

Tax Treatment

• Counts toward RMD
• Excluded from income (not just a deduction) 

This distinction is critical:

A QCD reduces AGI, whereas a charitable deduction does not.

3. RMD Rules and Planning Considerations

Current RMD Age

• Age 73 (SECURE 2.0) 

Timing Rule

• First RMD:
  • By April 1 of the following year
• After that:
  • Annually by December 31 

Planning Strategy

Clients can:

• Take one RMD at 73 and one at 74, or
• Delay and take two RMDs in one year (74) 

This creates tax planning opportunities—but also risks higher AGI if not managed properly. 

4. Critical Strategy: Do QCDs BEFORE RMDs

This was one of the most important practical takeaways:

QCDs must be done first to offset RMDs

Example:

• RMD = $10,000
• QCD = $5,000 

Correct order:

1. Do $5,000 QCD
2. Take $5,000 taxable RMD 

If reversed:

• Full $10,000 becomes taxable
• QCD no longer offsets the RMD 

5. Why QCDs Are So Valuable (Especially Today)

1. Most Clients Don’t Itemize

• ~90–95% of taxpayers take the standard deduction
• Charitable gifts often provide no tax benefit 

QCDs fix this by:

• Providing a tax benefit even without itemizing 

2. AGI Management Tool

QCDs reduce AGI, which impacts:

• Medicare IRMAA surcharges
• Taxation of Social Security
• Net investment income tax (3.8%)
• Eligibility for deductions and credits 

6. New Tax Law Considerations (“One Big Beautiful Bill”)

Larry referenced recent legislative changes affecting planning:

Enhanced Senior Deduction

• Available ages 65+
• Subject to AGI phaseouts
  • ~$75,000 single
  • ~$150,000 married 

Planning Insight:

• Large RMDs or Roth conversions can eliminate this deduction
• QCDs help preserve it by lowering AGI 

New Charitable Deduction Rules (Starting 2026)

• Itemizers face a 0.5% AGI floor
• Non-itemizers get:
  • $1,000 (single)
  • $2,000 (married) 

7. Charitable Gift Annuities (CGA) via QCD

A newer planning strategy:

Key Rule

• One-time election:
  • Up to $55,000 (indexed) 

Benefits

• Satisfies RMD
• Provides guaranteed lifetime income
• Typically ~7–8% payout depending on age  

Important Trade-Offs

• Payments are fully taxable ordinary income
• No charitable deduction (since funded with IRA dollars) 

Planning Insight

Larry’s recommendation:

“Go big”—use the full $55,000 to make the annuity meaningful

8. IRA Basis and QCD Advantage

For clients with after-tax IRA basis (Form 8606):

• QCDs use taxable dollars first
• This preserves tax-free basis inside the IRA 

Result:

• Future withdrawals become more tax-efficient 

9. Documentation and Compliance

To properly report QCDs:

Required:

• 1099-R (still shows full distribution as taxable)
• Client/advisor must:
  • Adjust on Form 1040
  • Report taxable amount correctly 

New Update:

• 1099-R Code “Y” for QCDs (not widely implemented yet) 

Must Have:

• Written acknowledgment from charity:
  • Date
  • Amount
  • “No goods or services received” 

Failure → deduction (or exclusion) may be denied

10. Common Pitfalls to Avoid

1. Taking RMD Before QCD

• Eliminates tax benefit 

2. Using Wrong Account Type

• QCDs only from IRAs 

3. Deductible IRA Contributions After 70½

• Reduces QCD exclusion (complex rule) 

Best practice:

Avoid deductible IRA contributions after 70½ if using QCDs

4. Poor Documentation

• Missing acknowledgment letters can invalidate tax benefits 

11. QCD vs Other Giving Strategies

QCD vs Cash Donation

• QCD reduces AGI → usually better 

QCD vs Appreciated Securities

• Securities:
  • Avoid capital gains
  • Subject to AGI limits
• QCD:
  • Simpler
  • No AGI limitations
  • Better for retirees 

Donor-Advised Funds

• Cannot currently receive QCDs 

12. Estate Planning Applications

QCD discussion extended into estate planning:

Strategy:

• Leave IRAs to charities
• Leave tax-efficient assets to heirs

Why:

• IRAs are:
  • Income taxable
  • Potentially estate taxable 

Charities:

• Pay no income tax 

Result:

• Maximizes after-tax wealth transfer 

13. Real-World Case Insight

Example:

• Couple with large RMDs and appreciated stock 

Strategies used:

• Maximize QCDs
• Donate appreciated securities
• Use CGAs 

Outcomes:

• Lower AGI
• Reduced Medicare premiums
• Reduced estate taxes
• Lower future RMDs 

Key Takeaways

• QCDs are one of the most tax-efficient strategies for retirees
• The biggest benefit is AGI reduction, not just tax savings
• Always:
  • Do QCDs before RMDs
  • Maintain proper documentation
• New laws increase the importance of:
  • AGI management
  • Strategic charitable planning
• CGAs offer a hybrid solution:
  • Income + philanthropy 

Bottom Line

QCDs are no longer a niche strategy—they are a core planning tool for retirement income, tax efficiency, and charitable giving.

Advisors who integrate:

• QCD timing
• RMD coordination
• AGI management 

…can significantly improve after-tax outcomes and long-term planning results for their clients.