Primer on Gifts From Retirement Plans

Some financial institution studies estimate that Boomers currently hold more than $16 trillion in individual retirement accounts (IRAs). Other retirement plans, like 401(k)s and 403(b)s hold trillions as well. Retirement plans offer owners an opportunity to make tax-favored charitable gifts.

Outright Gifts

Donors who are 59½ or older can make withdrawals from their traditional IRA or other tax-favored retirement plans without triggering an early withdrawal penalty. If the donor uses all or a portion of this withdrawal as a charitable gift, and they itemize their deductions, they are allowed a corresponding charitable deduction for cash gifts up to 60% of their adjusted gross income (AGI), although certain limits will be imposed on high-income individuals beginning in 2026.

In 2015, Congress made permanent the qualified charitable distribution (QCD) from IRAs provision, which offers a way for donors who are 70½ or older to make tax-free gifts, regardless of whether they itemize.
Taxpayers who are 73 and older and who have IRA accounts must withdraw money from their accounts each year. These are called required minimum distributions (RMDs), and taxes must be paid on the amount withdrawn. QCDs can count towards a donor’s RMD up to an annual limitation amount. This amount is indexed each year for inflation.

What Are the Rules for QCDs?

The taxpayer must:

  • Be 70½ or older at the time of the gift.
  • Have a traditional or other eligible IRA account.
  • Have the funds transferred directly from the IRA to a qualified charitable entity.
  • Not receive any benefits of value in return for the gift.
  • Not exceed a total of $111,000 (for tax year 2026).
  • Must properly report an IRA distribution to charity on their tax return (see “How to Report a QCD”).

How to Report a QCD

Even if a QCD donor meets all of the other requirements, they will lose anticipated benefits if the gift is not reported properly for tax purposes.

Each year, the IRA plan administrator or trustee should provide the IRA account holder with a 1099-R form outlining the total distributions.

Taxpayers should report QCDs on the 1040 by indicating the full amount of the IRA withdrawal in box 4a. Box 4b should be the total of the full withdrawal minus the QCD amount, and then check the box for “QCD.” If the entire withdrawal qualifies as a QCD, $0 would be entered as the taxable amount on line 4b.

The illustration below features the 2025 1040 form. Note that the withdrawal is $150,000 with $108,000 counting as the QCD. Therefore, the total on line 4b is $42,000 ($150,000-$108,000).

The Nonprofit’s Role

Based on surveys in past years, most of the dollar value from annual QCDs will come from a smaller number of gifts between $10,000 and $100,000. The balance will fall in the middle. There are more distributions of $5,000 than any other amount. The second most common distribution to a single charitable entity was the 2025 maximum amount of $108,000.

Consider sending information about QCDs in communications, at the beginning of the year (to reach donors before they take their IRA distributions for the year) and in the fall (to reach donors who haven’t yet made a withdrawal from their IRA), to a targeted list of donors who are at least 70 ½ years old.

Additional targeted communications might include custom language for those who have reached or will reach 70 ½ by Dec. 31. It might be worth a custom communication piece to those who have reached or will reach age 73 to inform them of the ability to reduce taxes on their RMDs. Obviously, you must first know the ages of your donors. If you do not have this information appended to your donor database, Sharpe Data Services.

Another helpful piece of information to share with donors is how to report their QCD. Even though it is the taxpayer’s responsibility to report these transfers, you may wish to remind QCD donors to make certain their advisors are aware of the distribution and report the nontaxable portion properly under IRS rules. Such reminders may be done in various gift acknowledgments and via other donor communication channels.

Don’t forget that the charity can be designated as a beneficiary of all or part of the retirement plan as well.

Helpful Tools:

  • Sharpe Data

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  • Sharpe Planned Giving Websites

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