If you are taking Required Minimum Distributions (RMDs) and donate money to charity, there is a simple strategy you can employ to save on taxes and other costs. By making Qualified Charitable Distributions (QCDs) from a qualifying IRA, you may be able to save hundreds or even thousands of dollars on taxes and also reduce Medicare premiums.
This strategy is only available for people who are at or over age 70 ½ and have traditional, inherited, SIMPLE, or SEP IRAs. You may know that RMD ages recently increased from age 70 ½ to 73 and will increase again to 75 for those born in 1960 or later. The QCD strategy is most helpful for those who have RMDs so consult with an advisor at American Money Management to find out if you could benefit.
It is important to note that many inherited IRAs have RMDs but owners can only make QCDs if they are age 70 ½ or older. You cannot make QCDs from a 401(k) whether or not you are over 70 ½.
Qualified Charitable Distribution Strategy
When you make a charitable donation out of your bank account, you can deduct it on your taxes as an itemized deduction if your total itemized deductions are larger than your standard deduction. Beginning in 2026, those that take the standard deduction can deduct up to $1,000 ($2,000 for married filing jointly) of charitable donations made in cash. This is a simple way of reducing your taxable income while doing some good in the world.
Standard and itemized deductions reduce your taxable income but do not reduce your Adjusted Gross Income (AGI).
Your AGI is your total taxable income minus any “above-the-line” deductions like IRA contributions and is used in determining your eligibility for certain tax credits, income brackets for Medicare premiums, and eligibility for other federal programs. Your AGI minus your “below-the-line” deductions (itemized or standard) determines your taxable income and thus your taxes owed.
AGI - Itemized Deductions or Standard Deduction = Taxable Income
Many tax and benefit systems use AGI as a basis to calculate other taxes or adjust costs for programs like Medicare. The portion of your Social Security benefits subject to income tax also depends on your overall AGI. Because many programs are based on AGI limits, “above the line” deductions are often times more valuable than “below the line” deductions.
Those who qualify to make Qualified Charitable Distributions (QCDs) from an eligible IRA type could opt to make these charitable donations directly from that IRA. The custodian of your IRA (Charles Schwab, for example) will send the funds directly from your IRA to the charity you identify via check or electronic transfer. Because the funds never reach your bank account, they are not entered as income on your tax return.
Using this strategy also means that you do not get to deduct any charitable donations made through a QCD. So your QCD is not income, but it is also not an additional deduction – the RMD becomes a net zero AGI impact. This works out in your favor when compared with taking your RMD and then donating that amount to a charity later on, however, because the QCD results in lower adjusted gross income (AGI) which can help reduce costs in other areas.
You are currently able to donate up to $111,000 per year (2026 numbers) through QCDs regardless of your RMD amount. If you plan to donate more than your RMD, you may benefit by using a combination of QCDs and tax-deductible donations.
Medicare, Social Security, and Taxes
Medicare Part B premiums can be expensive for enrollees. They are paid monthly and, in 2026, range from $202.90 per month to $689.80 per month. Medicare Part D premiums range from $0 per month to $85.80 per month.
Your premiums for these types of Medicare are redetermined every year and are based on your AGI plus nontaxable interest from two years prior. Reducing your AGI by making QCDs can save you a significant amount in Medicare premiums.
Let’s use a simple example. Assume you are unmarried and retired and your Required Minimum Distribution this year from your IRA is $10,000. By happenstance, you also plan to donate $10,000 to charity this year.
Your Adjusted Gross Income from all sources (including your RMD) is $110,000 in 2026 and your overall itemized deductions are $32,000. Using the QCD strategy, your AGI becomes $100,000 and your itemized deductions become $22,000. Both strategies result in $78,000 of taxable income but the first strategy means you will pay $284.10 for Medicare part B in 2026 while the QCD strategy means you pay $202.90/month.
This one switch saves you $974.44 in additional Medicare premiums over the next year without costing you any more in taxes. If you were planning on donating that $10,000 regardless, this can be a winning strategy.
The amount of your Social Security subject to income tax is also partially determined by your AGI. Many recipients have to include 85% of their benefits on their tax return but if your AGI is low enough, you may only need to include 50% or even 0% of your benefits.
Another potential cost QCDs can help you avoid is the Net Investment Income Tax (NIIT). This is an additional tax on investment income for those with modified AGI (AGI plus nontaxable interest) over $200,000 in 2026 (or $250,000 married filing jointly).
This Strategy Doesn’t Work for Everyone
The QCD strategy doesn’t make a difference for everyone, however. Those whose AGI is already very low may not realize a benefit from making QCDs when compared with making tax-deductible donations. Taxpayers who are not subject to RMDs may also not benefit from this strategy.
Please also keep in mind that this strategy still requires you to give away money which will almost always mean more money out the window than what you are saving in taxes. For those who are already charitably inclined, and do not need their RMDs for living expenses, giving in a tax-efficient way can be an added bonus.
You can currently only use this strategy to donate to qualified charitable organizations which does not include private foundations or supporting organizations.
Contact an advisor at American Money Management, LLC to find out how this strategy can help you.