Clients Taking RMDs? A Qualified Charitable Distribution Might Help

August 13, 2018

Due to the Tax Cuts and Jobs Act, clients may want to consider making a qualified charitable distribution (QCD) to lower tax bills and Medicare premiums.

As a result of the Tax Cuts and Jobs Act passed in late 2017, clients age 70 ½ or older who want to support public charities and potentially lower their taxes might want to consider making a qualified charitable distribution (QCD).

What is a QCD?

QCDs were created by the Pension Protection Act of 2006 and were made permanent in 2015. Under IRC Section 1201 of the PPA, an individual who is age 70 ½ or older can give up to $100,000 per year directly from their IRA to a qualifying public charity.

Normally, a required minimum distribution (RMD) from a traditional IRA is included in the client's MAGI, or modified adjusted gross income, which can ultimately increase the client's taxable income. Using a QCD to give all, or part, of the RMD to a public charity means the RMD will not affect the client's income and may reduce the client's tax bill. Note that the QCD is not included as income, so there is no tax deduction available when a client uses this strategy.

Since QCDs are excluded from taxable income rather than taking a deduction for the charitable donation, they may be a good choice for clients who do not plan to itemize deductions.

QCDs allow clients to make use of their RMD funds while lowering adjusted gross income (AGI) and MAGI, which can help lower taxable income. This strategy can be advantageous for a number of reasons.

Beyond tax benefits

AGI can affect taxation of other benefits, such as Social Security.

For Medicare, MAGI determines whether an income-related monthly adjusted amount (IRMAA) applies to Medicare Part B premiums. These premiums are determined by annual income. A couple filing jointly with a MAGI of $170,000 or less pays the lowest premium for Part B, or $134 per month each. Couples with MAGIs between $170,000 and $214,000 will each pay $187.50 per month. Lowering AGI by making a QCD can reduce MAGI, which in turn can help lower premiums. 

How QCDs affect itemizing

QCDs tend to work best for people who don’t itemize charitable contributions on their tax returns. The reason: The standard deduction limit is now $13,600 for single filers 65 or older ($12,000, the 2018 standard deduction for unmarried individuals, plus $1,600) and $26,600 for couples 65 or older ($24,000, the 2018 standard deduction for joint filers, plus $1,300 per individual) filing jointly. 

A QCD won’t help boost taxpayers over this higher standard deduction threshold, so if they are counting on itemizing they may want to consider other strategies. For example, a “bunching” strategy involves making two or more years’ worth of charitable donations in a single year, helping to maximize itemized deductions.

That said, many clients might be better served by taking the standard deduction and managing taxes through other means. For them, the QCD offers a permanent, highly effective tool for reducing their tax bills while supporting the charitable causes of their choice. 


If you have any questions regarding QCDs and strategies for your clients, contact the Pacific Life Retirement Strategies Group at (800) 722-2333, ext. 3939, or send an email to

Picture of Susan Wood

Susan is a Senior Retirement Strategies Group Consultant with more than 25 years of industry experience, including financial planning and wealth management. She has worked in a private planning firm, a joint venture with a trust company, broker/dealer firms, and financial services companies. She has provided continuing education to both financial and legal professionals.

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