OBBBA’s Quiet Win: Bigger, Cleaner Tax Breaks for QCDs From Your IRA

October 2025

If you’re age 70½ or older, you can transfer money directly from an IRA to qualifying charities. Those transfers are Qualified Charitable Distributions (QCDs). Thanks to the One Big Beautiful Bill Act (OBBBA), QCDs now protect even more tax benefits by keeping AGI/MAGI low while still satisfying charitable goals.

Below is the upgraded, precise version you can publish.

QCDs in One Minute

• A QCD is a transfer from your IRA directly to a U.S. 501(c)(3) public charity (churches, universities, operating charities).
• Tax result: the amount never hits income. That typically beats taking a taxable IRA distribution and trying to itemize the gift.
• No double-dip: you do not claim a charitable deduction for a QCD.
• Eligibility: you (owner or beneficiary) must be 70½+ on the date of the transfer.
• Payment path: custodian → charity (checks payable to the charity or direct electronic transfer).
• Annual cap (2025): $108,000 per person (inflation-adjusted). Spouses with their own IRAs each have a separate cap.
• Accounts that qualify: traditional, rollover, inherited, and (rarely optimal) Roth IRAs.
• Accounts that do not qualify directly: 401(k)/403(b)/457(b) plans. If needed, do a direct rollover to an IRA first, then QCD.
• SEP/SIMPLE nuance: QCDs can come from SEP/SIMPLE IRAs only in years with no employer contributions (inactive plans).

Inherited IRAs qualify for QCDs once the beneficiary is 70½+.

Why QCDs Matter More Under OBBBA

Because QCDs do not raise AGI/MAGI, they help you avoid or soften income-based limits:

• Bracket creep: regular IRA withdrawals increase taxable income; QCDs do not.
• 60% of AGI cap on cash gifts: irrelevant to QCDs.
• New charitable “floor” (from 2026): OBBBA reduces itemized charitable deductions by 0.5% of AGI; QCDs sidestep it.
• High-income itemized haircut (from 2026): OBBBA caps the value of itemized deductions at 35% for top-bracket filers; QCDs sidestep it.
• Senior bonus deduction (2025–2028): up to $6,000 per spouse 65+; phases out with higher MAGI. QCDs don’t raise MAGI.
• Bigger SALT deduction (2025–2029): higher cap but phases out at high MAGI; QCDs help you stay under.
• Other phaseouts: rental loss allowance, education credits, student-loan interest, §199A, etc.
• Medicare IRMAA: surcharges are MAGI-based two years back; QCDs help avoid thresholds.
• 3.8% NIIT: applies above MAGI thresholds; QCDs don’t push you closer.

RMD Coordination: Replace Taxable RMDs With Tax-Free QCDs

At age 73+, QCDs can satisfy your RMD (up to the annual QCD cap). Done correctly, you can replace what would have been a taxable RMD with a tax-free transfer to charity.

• Sequence matters: to have a QCD count toward this year’s RMD, make the QCD first. Cash RMDs that hit your account cannot be retro-labeled as QCDs.
• Example: RMD is $15,000; you want to give $25,000. Direct a $25,000 QCD. Result: $25,000 tax-free to charity, RMD fully satisfied, no additional taxable distribution.

Multiple IRAs: RMDs aggregate across your IRAs, but a QCD must come from an IRA to count. You can do the QCD from any one IRA and still satisfy the year’s total IRA RMD.

Basis Interaction (For Nondeductible IRA Contributions)

If you’ve made nondeductible IRA contributions, your IRA has basis. By statute, QCDs are treated as coming from the taxable layer first (which becomes tax-free because it’s a QCD). Any excess can dip into basis and may require Form 8606. Keep a clean basis ledger.

Post-70½ Contribution “Offset” Rule (SECURE Gotcha)

You can contribute to IRAs after 70½ if you have earned income. But deductible IRA contributions made after 70½ reduce how much of your future QCDs can be treated as tax-free until those deductions are effectively “recaptured.”

Only deductible contributions after 70½ reduce QCD headroom; nondeductible contributions do not.

Which Charities Qualify (and Which Don’t)

• Yes: U.S. public charities (and certain operating foundations).
• No: donor-advised funds, supporting organizations, private non-operating foundations, or any transfer where you receive more than incidental benefits (tickets, dinners, etc.).
• Foreign charities work only via a U.S. “friends of” charity issuing the receipt.

If you want to fund a DAF or private foundation, use non-IRA assets; save IRA dollars for QCD-eligible public charities.

One-Time Split-Interest Upgrade (SECURE 2.0)

Once in your lifetime you can direct up to the indexed “$50k” limit from an IRA to a charitable gift annuity or charitable remainder trust as a QCD. It counts toward the annual QCD cap and follows special payout rules. Useful for donors who want lifetime income plus QCD tax benefits.

Timing and Reporting (Avoid the Year-End Headaches)

• Year of credit: a QCD counts in the year the charity receives funds, or the custodian’s check is payable to the charity and mailed by Dec 31. Electronic transfer is cleaner near year-end.
• Multiple charities: you can split QCDs across charities in the same year, within the cap.
• Return reporting: custodians issue a normal 1099-R (it won’t say “QCD”). On Form 1040 report total IRA distributions on Line 4a, the taxable amount on Line 4b (exclude the QCD), and write “QCD” next to Line 4b. File Form 8606 if basis was involved.
• State angle: most states follow federal QCD treatment, but not all. Some state charitable credits require a deductible gift; QCDs are not deductible. Check state rules.

Quick Checklist (Do It Right)

• Confirm you’re 70½+ on the transfer date.
• Verify the charity is a QCD-eligible 501(c)(3) (not a DAF/supporting org/private non-operating foundation).
• Instruct the custodian: pay directly to the charity; include your name/memo.
• If using QCD to satisfy RMD, QCD first.
• Track the annual cap: $108,000 per person (2025).
• Keep the no-goods/services acknowledgment letter.
• Report 4a/4b correctly; add Form 8606 if basis is touched.

Who Benefits Most

• Standard-deduction filers who won’t itemize anyway.
• High-income retirees managing IRMAA, NIIT, and OBBBA’s new itemized limits.
• Donors who want to neutralize RMDs.
• Families coordinating estate plans (leave pretax IRA dollars to charity, after-tax assets to heirs).
• Spouses in community-property states: remember, each spouse needs their own IRA to use their own QCD cap.

Tiny FAQ

• Can I QCD from a 401(k)? No. Roll to an IRA first, then QCD.
• Can I receive anything in return? No, beyond incidental benefits.
• Can I donate stock from my IRA as a QCD? No. QCDs are IRA distributions (cash). Donate appreciated securities from a brokerage account instead.
• Why doesn’t my 1099-R show QCD? It won’t. You designate it on the 1040 and keep the charity receipts.
• Roth IRA QCDs? Allowed, but typically minimal benefit unless a Roth distribution would otherwise be taxable.

Bottom Line

QCDs let you fund charities while cutting tax exposure at the root by keeping AGI/MAGI down. Under OBBBA’s new floors, haircuts, and phaseouts, that’s the smarter way to give. With a $108,000 per-person cap (2025), coordinated QCDs can satisfy RMDs, preserve deductions and credits, and tidy up your estate plan in one move.

General information, not tax advice. We set up custodian instructions, coordinate timing with RMDs, and model AGI/MAGI and state impacts so your QCD strategy delivers the savings it should.