OBBBA’s Secret Gift: Bigger Tax Breaks for QCDs from Your IRA
- Viktoriya Barsukova, EA, MBA
- Oct 10
- 12 min read
If you’ve reached age 70 1/2, you can make cash donations to IRS-approved charities—such as your church—directly out of your IRA.
With the One Big Beautiful Bill Act (OBBBA), these so-called qualified charitable distributions (QCDs) can be a very tax-smart way to satisfy your charitable inclinations.
Here’s what you need to know.
QCD Basics
You can arrange to have QCDs taken out of your traditional IRA(s) free of any federal income tax hit.1
In contrast, other traditional IRA withdrawals are taxable—wholly or partially, depending on whether you’ve made any non-deductible contributions over the years.
Unlike with garden-variety charitable donations, you can’t claim any itemized deductions for QCDs, and that’s okay. That’s better than okay! Why? The tax-free treatment of QCDs equates to a 100 percent deduction—because you’ll never be taxed on those amounts. And you don’t have to worry about tax-law restrictions that apply to itemized charitable write-offs.
Also, as explained later in this article, you can use the QCD to minimize and even avoid some new, unfavorable federal income tax provisions that OBBBA added.
To be a QCD, an IRA distribution to your charity must meet all the following requirements:2
It cannot occur before you, as the IRA owner or beneficiary, are age 70 1/2.
It must be transferred by your IRA trustee directly to an IRS-approved charity. The funds cannot pass through your hands or any other person’s hands in any fashion (for example, by being deposited in an account other than one belonging to the charity).
It must meet the normal tax-law requirements for a 100 percent deductible charitable donation. If you receive any benefits that would be subtracted from a donation under the normal charitable deduction rules (such as free tickets to an event), the distribution cannot be a QCD. Beware of this rule in particular!
It must be a distribution that would otherwise be taxable.
It cannot be a distribution from a SEP-IRA or a SIMPLE-IRA.
Key point. If you inherited a traditional IRA from a deceased original account owner, you too can do the QCD drill with the inherited account if you’ve reached age 70 1/2.
Annual Limit on QCDs
There is an annual inflation-adjusted limit on total QCDs for any one year. For 2025, the inflation-adjusted limit is $108,000.3 If both you and your spouse have IRAs set up in your respective names, each of you is entitled to a separate $108,000 QCD limit for 2025.
QCDs Have Five Potential Tax-Saving Advantages
Advantage No. 1
The first tax-saving advantage of QCDs comprises several parts. QCDs are not included in your adjusted gross income (AGI) or your taxable income. This lowers the odds that you will be affected by various unfavorable income-based tax provisions, including some new ones added by the OBBBA.
A. You avoid being pushed into higher tax bracket. The taxable percentage of a “regular” distribution from an IRA adds to your taxable income and can push you into a higher tax bracket. But QCDs don’t increase your taxable income.
B. You avoid the limit of 60 percent ofAGI on deductions for cash charitable contributions. QCDs are exempt from the rule that says itemized write-offs for cash contributions to charities cannot exceed 60 percent of your AGI.4 For 2025, you can make QCDs of up to $108,000. So can your spouse if he or she has one or more IRAs set up in his or her name.
C. You avoid the new floor on charitable deductions. Starting in 2026, the OBBBA reduces your otherwise allowable itemized charitable deduction by 0.5 percent of your AGI. Put another way, if you are an itemizer who makes qualified charitable contributions, your charitable write-off will be limited to the amount that exceeds 0.5 percent of your AGI.5
QCDs escape this unfavorable new rule.
D. You avoid the new itemized deduction reduction for higher-income individuals.Starting in 2026, allowable itemized deductions for individuals who are in the maximum 37 percent federal income tax bracket will be reduced so that the tax benefit of their itemized deductions is limited to no more than 35 percent. This new OBBBA provision will be applied afterthe new OBBBA floor on itemized charitable deductions.6
QCDs escape this unfavorable new rule.
E. Your QCD helps you avoid the phaseout of your new bonus deduction for seniors. If you’re age 65 or older, the OBBBA allows you to claim a new senior bonus deduction of up to $6,000 for 2025-2028, subject to an income-based phaseout rule. The deduction is available whether you itemize or not.
If both spouses in a married joint-filing couple are age 65 or older, each spouse is potentially eligible for a separate bonus deduction of up to $6,000, for a combined total of up to $12,000. But the bonus deduction phases out when your modified AGI (MAGI) exceeds $75,000 for unmarried individuals or $150,000 for married joint-filing couples. Phaseout is complete when MAGI exceeds $175,000 or $250,000, respectively.7
The taxable percentage of a “regular” distribution from an IRA adds to your MAGI and increases the odds that your senior bonus deduction will be wholly or partially phased out.
QCDs don’t increase your MAGI.
F. You avoid phaseout of the bigger SALT deduction allowance. The 2017 Tax Cuts and Jobs Act (or TCJA) limited state and local tax (SALT) deductions for itemizers to $10,000, or $5,000 for married individuals who file separately. These skimpy limits caused much unhappiness for residents of high-tax states and some of their elected representatives.
For 2025-2029, the OBBBA increases the SALT deduction limit to $40,000, or $20,000 for married individuals who file separately—with a 1 percent annual increase adjustment to the limits.
For 2025, the higher SALT deduction limit begins to phase out for taxpayers with MAGI over $500,000, or $250,000 for married individuals who file separately. For 2026-2029, these phaseout thresholds will be adjusted upward for that 1 percent. The phaseout rule reduces the otherwise allowable SALT deduction limitation by 30 percent of MAGI in excess of the applicable threshold, but not below $10,000/$5,000.8
The taxable percentage of a “regular” distribution from an IRA adds to your MAGI and increases the odds that your larger SALT deduction will be wholly or partially phased out.
QCDs don’t increase your MAGI.
G. You avoid phaseout of other tax breaks. The taxable percentage of a “regular” distribution from an IRA adds to your AGI or MAGI and increases the odds that other AGI/MAGI-sensitive tax breaks will be wholly or partially phased out. These include, among others,
the ability to currently deduct passive rental real estate losses,
the ability to claim education tax credits,
the ability to deduct college loan interest expense,
the ability to claim the new deduction for car loan interest,
the ability to claim the deduction for qualified business income,
and so forth.
Since QCDs don’t increase your AGI or your MAGI, your odds of benefiting from these breaks are higher.
H. You avoid Medicare health insurance surcharges. Medicare Part B coverage, commonly known as Medicare medical insurance or Original Medicare, mainly covers doctors, hospitals, and outpatient services. Medicare-eligible individuals must pay monthly premiums for this benefit.
The monthly premium for the current year depends on your MAGI, as reported on your Form 1040 two years earlier. Higher-income individuals must pay a monthly surcharge on top of the monthly base premium.
In government-speak, the surcharge is called the income-related monthly adjustment amount (IRMAA). For example, for 2025, IRMAA surcharges apply if you9
filed as an unmarried individual for 2023 and reported MAGI for that year in excess of $106,000 or
filed jointly for 2023 and reported MAGI for that year in excess of $212,000.
The taxable percentage of a 2025 “regular” distribution from an IRA adds to your MAGI and increases the odds that you will be hit with an IRMAA surcharge, or a bigger IRMAA surcharge, in 2027.
QCDs don’t increase your MAGI.
I. You avoid the 3.8 percent net investment income tax (NIIT). The NIIT is actually a 3.8 percent Medicare surtax on your investment income. Needless to say, capital gains, dividends, and interest count as investment income, and you may have lots of investment income in 2025.
You are potentially exposed to the NIIT if your MAGI exceeds the applicable thresholds described below:
$200,000 if you are unmarried
$250,000 if you are a married joint-filer
$125,000 if you use married-filing-separate status
The amount hit with the 3.8 percent NIIT is the lesser of10
net investment income or
the amount by which your MAGI exceeds the applicable threshold.
The taxable percentage of a 2025 “regular” distribution from an IRA adds to your MAGI and increases the odds that you will be hit with the NIIT.
QCDs don’t increase your MAGI.
Advantage No. 2
QCDs taken from traditional IRAs count as distributions for purposes of the required minimum distribution (RMD) rules, which apply to you if you’re age 73 or older. Between now and year-end, you could arrange to donate all or part of your 2025 RMD amount (up to the $108,000 limit) that you would otherwise be forced to receive and pay taxes on.
In other words, you can effectively replace taxable RMDs with tax-free QCDs.11
To be clear, once you reach age 73, you must begin taking annual RMDs, and you have two choices if you are charitably inclined:
Take the RMD, pay the resulting tax hit, and then make your charitable donations that you may not be able to fully write off under the itemized deduction rules.
Make the same charitable donations out of your IRA(s) via QCDs, which also count toward your RMD obligation for the year. That way, you can satisfy all or part of your RMD obligation with no tax hit while also satisfying your charitable urges. This is clearly the better choice.
Timing Considerations to Help You Benefit from Advantage No. 2
Some age-73-and-older traditional IRA owners like to get their annual RMD out of the way early in year. But to cover all or part of your RMD obligation with a tax-free QCD, you must make the QCD first.
What you cannot do is try to retroactively “convert” an RMD into a QCD, because the RMD went through your hands in some fashion rather than going, as required for a distribution to be a QCD, directly from your IRA to a charity.
Example 1. Tony, age 75, took a $5,000 RMD from his only traditional IRA in February 2025. The RMD money went into his checking account.
Later that year, in December 2025, Tony makes a $5,000 distribution to an IRS-approved charity, which counts as a QCD, thinking it will offset his taxable RMD taken earlier in the year. Wrong!
Tony withdrew a total of $10,000 from his traditional IRA, $5,000 of which represented a taxable RMD because it was taken before the QCD. The only good news here is that the $5,000 QCD taken later in the year is tax-free.
Tony should have made the $5,000 QCD in February. It would have been tax-free, and it would have covered his 2025 RMD obligation. Done! There would have been no need to take anything more from his IRA in 2025.
The key point is that QCDs can be made at any time during the year, and they can be made after all or a portion of the RMD for the year has been taken. But as illustrated in Example 1 (above), the timing of QCDs is important if you want to use them to cover all or part of your RMD obligation for the year.
Example 2. Angel is age 75. For 2025, the RMD obligation for her traditional IRA, which was mostly funded with a rollover contribution from her former employer’s retirement plan, is $15,000.
Angel wants to make a $25,000 charitable donation to her church, which is an IRS-approved charity. If Angel makes a $25,000 QCD to her church in 2025, it satisfies her $15,000 RMD obligation for the year and also delivers the desired $25,000 to her church.
The $25,000 QCD is tax-free, and no separate RMD need be taken. Done!
Advantage No. 3
Say you own one or more traditional IRAs to which you have made non-deductible contributions over the years. Your IRA balances consist partly of a taxable layer (from deductible contributions and account earnings) and partly of a non-taxable layer that creates tax basis in your IRA(s) (from those non-deductible contributions).
QCDs are treated as coming from the taxable layer, but because they are QCDs, they are tax-free.12 It’s generally best to leave non-taxable amounts in your IRA(s). Later on, you or your heirs can withdraw those non-taxable amounts tax-free.
Example 3. Amy is age 75 as of December 31, 2025. In December 2025 she directs the trustee of her only traditional IRA to make a distribution of $25,000 directly to an IRS-approved charity. This is the only distribution from the IRA for the year.
The total value of Amy’s IRA is $30,000, consisting of $20,000 of deductible contributions and account earnings and $10,000 of non-deductible contributions that create $10,000 of tax basis in the account.
The $20,000 of the distribution to the charity that would otherwise be taxable (from deductible contributions and account earnings) counts as a QCD.
The remaining $5,000 of the distribution to the charity is a non-taxable distribution of account basis (from non-deductible contributions). Since she made a non-taxable distribution, Amy must file Form 8606 (Nondeductible IRAs) with her 2025 Form 1040.13
Amy reports the total distribution of $25,000 on Line 4a of her 2025 Form 1040. She completes Form 8606 to determine the taxable amount of the distribution to enter on Line 4b of Form 1040 and the remaining basis in her IRA. Amy enters -0- on line 4b because none of the distribution was taxable. She enters “QCD” next to Line 4b to indicate that a QCD was made.
After the distribution, the remaining basis in Amy’s IRA is $5,000 ($10,000 − $5,000 of basis included in the distribution to the charity). If Amy itemizes deductions, the $5,000 of basis included in the distribution to the charity can be treated as a garden-variety charitable contribution. She cannot deduct the $20,000 QCD.
Since Amy is age 75 as of December 31, 2025, she must take an RMD from her IRA in 2025. The RMD amount equals the IRA account balance as of December 31, 2024, divided by the life expectancy divisor from Table III of Appendix B in IRS Publication 590-B.14 The divisor is 24.6.
Assume Amy’s IRA balance as of December 31, 2024, was $28,000. The RMD for 2025 is $1,138 ($28,000/24.6).15Her QCD of $20,000 more than covers her RMD obligation for 2025. Done!
Advantage No. 4
QCDs reduce your taxable estate, although that’s not an issue for most folks now that the 2025 federal estate tax exemption has been supersized to $13.99 million for singles and effectively $27.98 million for married couples.
Warning: Adding Money in the Form of Deductible IRA Contributions after Age 70 1/2 Reduces Allowable QCDs
Starting in 2020, thanks to a change included in the SECURE Act, you can make IRA contributions after reaching age 70 1/2 as long as you have sufficient earned income. But if you make deductible contributions after age 70 1/2, the amount of tax-free QCDs that you can make is reduced by the excess of the aggregate amount of deductible IRA contributions that were made after that age for the current year and any prior year.16
Example 4. Jim turned 70 1/2 in 2023. In 2023 and 2024, he deducted $5,000 of IRA contributions each year. He made no contribution for 2025.
Jim attempted to make QCDs of $6,000 for 2024 and $6,500 in 2025 to his favorite charity.
His attempted $6,000 QCD for 2024 is reduced, but not below zero, by the $10,000 of contributions he deducted in 2023 and 2024. So, Jim has no QCD for 2024. He just has a $6,000 garden-variety IRA distribution subject to the usual tax treatment.
He includes the $6,000 in income.
If he itemizes for 2024, he can deduct the $6,000 because it was contributed to charity.
His attempted $6,500 QCD for 2025 is reduced by the $4,000 of “leftover” deductible contributions for 2023 and 2024. So, Jim has a $2,500 QCD for 2025 ($6,500 − $4,000) and a $4,000 garden-variety IRA distribution ($6,500 − the $2,500 QCD). If he itemizes for 2025, he can deduct the $4,000 because it was contributed to charity.
If Jim doesn’t make any more deductible IRA contributions, he can made future QCDs without any further reductions.17
Reporting QCDs
The total QCD amount should be included in the amount reported on Line 4a of Form 1040. The total taxable distribution amount after subtracting the QCD amount, if any, is reported on Line 4b. Enter the designation “QCD” next to Line 4b.18
Are You a Good QCD Candidate?
If you can afford to donate IRA money, you can benefit taxwise if you match one or more of the following profiles.
You won’t itemize because you’ll claim the generous standard deduction installed by the OBBBA. So, a “regular” charitable donation won’t deliver any tax advantage, but a QCD will.
You want to avoid exposure to unfavorable income-based provisions, such as the phaseout rules that reduce tax breaks, increase Medicare premium IRMAA surcharges, and impose the NIIT.
You want to avoid being taxed on the RMD amount that you must take from your IRA(s).
You’re very well-off and looking for a quick and easy estate tax reduction strategy.
You’re wholly or partly unaffected by the rule that reduces allowable QCDs by deductible IRA contributions made after reaching age 70 1/2.
Takeaways
QCDs from IRAs offer a powerful way for those age 70 1/2 or older to give to charity while trimming their tax bill. Thanks to the OBBBA, QCDs are now even more attractive:
They don’t increase your taxable income or MAGI.
They can count toward your RMD.
They sidestep new limits and phaseouts on deductions.
With an annual limit of $108,000 per person in 2025, QCDs can help you maximize charitable impact, protect other valuable tax breaks, and reduce future estate exposure. If you’re charitably inclined, QCDs may be one of the smartest moves you can make with your IRA
1 IRC Section 408(d)(8).
2 IRC Section 408(d)(8)(B).
3 Rev. Proc. 2024-40.
4 IRC Section 170(b)(1)(G).
5 IRC Section 170(b)(1)(I).
6 IRC Section 68(a).
7 IRC Section 151(d)(5)(C).
8 IRC Sections 164(b)(6); 164(b)(7).
9 Income related monthly adjustment amount (IRMAA) for 2025 Medicare Part B & Part D Premiums.
10 IRC Section 1411.
11 Notice 2007-7, Q&A-42.
12 IRC Section 408(d)(8)(A).
13 IRS Form 8606, Nondeductible IRAs (2024).
14 IRS Pub. 590-B, Distributions from Individual Retirement Arrangements (IRAs), dated Mar. 19, 2025.
15 This example was adapted from an example in IRS Pub. 590-B, Distributions from Individual Retirement Arrangements (IRAs), dated Mar. 19, 2025.
16 IRC Section 408(d)(8)(A).
17 This example was adapted from an example in IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), dated Mar. 19, 2025. The publication includes a worksheet on p. 69 to calculate QCDs in such scenarios.
18 IRS Form 1040, U.S. Individual Income Tax Return (2024).
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Tax Reduction Letter
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