Turn a Tax Obligation into a Kingdom Opportunity

By Brad Blackburn | Dyadic Financial Management

Are you at the point where you must take Required Minimum Distributions from your IRA? 
Are you charitably minded? 

If the answers to those two questions are “yes,” continue reading to find out how those two things can work together. 

Understanding IRAs and RMDs 

Traditional Individual Retirement Accounts (IRAs) allow you to put money into an account pre-tax and grow those savings tax deferred. This can be done through an IRA you set up on your own or through an employer-sponsored plan such as a 401(k) or 403(b) using pre-tax contributions. At retirement, withdrawals from these accounts are taxable income. The benefit: many people assume they will be in a lower tax bracket in retirement than during their working years. 

While pre-tax IRA contributions delay tax revenue, the government introduced them to encourage saving for retirement, knowing those funds would eventually be taxed. To ensure these funds are not deferred indefinitely, the government implemented Required Minimum Distributions (RMDs). Current law requires that after reaching age 73, you must take an RMD by December 31 each year. (For your first RMD, you can delay withdrawal until April 1^st of the following year.) 

For some, RMDs become a nuisance, especially if the funds are not needed for living expenses. These mandatory withdrawals can simply create a tax headache. 

A Charitable Solution: Qualified Charitable Distributions (QCDs) 

If you are charitably minded, a Qualified Charitable Distribution (QCD) can be an effective planning strategy. A QCD allows you to satisfy your RMD for the year by making a direct transfer from your IRA to a qualified charity. 

Key points about QCDs: 

• You must be at least age 70½ at the time of the distribution. 
• QCDs can be made only from an IRA (not a 401(k) or another plan). 
• The charity must be a qualified public charity, not a donor-advised fund or private foundation. 
• For 2025, you can exclude up to $108,000 per taxpayer, per year from gross income for donations paid directly to a qualified charity from your IRA. This amount is indexed for inflation. 
• The funds must go directly from your IRA to your designated charity. Distributions paid to you first and then donated do not qualify. 
• If you use a checkbook from your IRA custodian, take care to write checks only to qualified charities. 

Many individuals use the standard deduction when filing taxes. If you take the standard deduction and make charitable contributions out of pocket, those gifts are not deductible. A QCD strategy allows you to give to your favorite charity without paying taxes on the withdrawn amount first. 

Additional benefits of a QCD: 

• QCDs count toward satisfying your annual RMD. 
• Because QCDs are excluded from your taxable income, they may help reduce your overall tax liability—even if you do not itemize deductions. 
• Lowering your adjusted gross income (AGI) through a QCD can, in some cases, reduce the portion of your Social Security benefits that are taxable and may also decrease the income used to calculate your Medicare Part B and D premiums. 

How Much Can a QCD Save You? 

Let’s look at an example: 
John and Sally Smith are both over age 73 and wish to give $15,000 to charity this year. They can either take a taxable IRA distribution and then donate or use a QCD to make the gift directly from their IRA. 

	Taxable IRA Distribution	QCD
Total Income Before Deductions	$129,550	$114,550
Adjusted Gross Income	$129,550	$114,550
Taxable Income	$97,250	$82,250
Income Tax	$11,056	$8,776

By donating through a QCD, John and Sally lower their taxable income by $15,000 and save $2,280 on their federal income tax bill compared to taking a taxable distribution and then donating that same amount. 

Important Considerations 

There are a number of rules concerning Required Minimum Distributions and Qualified Charitable Distributions that may affect individual circumstances differently. The charitable contributions made via QCDs should not be claimed as an itemized deduction on your tax return. 

Next Steps 

Talk to your tax professional or call Brad Blackburn, CFP®, ChFC® at 803-708-4727 to discuss your unique situation and how a QCD strategy could work for you and the organization you support. 

Brad Blackburn, CFP®, ChFC®, is the founder of Dyadic Financial Management, with over 26 years of experience in the financial services industry. He is dedicated to helping individuals and families achieve their financial goals through education and wealth management. Brad is also actively involved in supporting community and charitable initiatives.