Managing AGI with QCDs

October 23, 2025

As many seniors know, keeping your income below certain thresholds can help avoid higher Medicare premiums triggered by IRMAA (Income-Related Monthly Adjustment Amount). One common strategy is using Qualified Charitable Distributions (QCDs) from a traditional IRA to manage taxable income and stay under those limits.

The Impact of the New Senior Deduction on QCD Strategies

The recently enacted H.R. 1—known as the One Big Beautiful Bill Act (OBBBA)—introduces a new senior deduction of $6,000 for individuals and $12,000 for married couples filing jointly, available for tax years 2025 through 2028. As a result, Qualified Charitable Distribution (QCD) planning has become even more valuable for a broader range of seniors.

For those seeking to minimize the impact of retirement account withdrawals on their Adjusted Gross Income (AGI), QCDs are a particularly effective tool. With careful planning, QCDs can help seniors keep their AGI at or below the new deduction’s phaseout threshold, which begins at $75,000 for individuals and $150,000 for married couples filing jointly and phases out at a rate of 6% for income above these limits. Because the phaseout range for this deduction is relatively modest compared to the higher thresholds for Medicare IRMAA surcharges, QCDs now play an expanded role in tax management and planning for many seniors.

What is a Qualified Charitable Distribution (QCD)?

A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an IRA (Individual Retirement Account) to an eligible charitable organization. To qualify, the IRA owner must be at least 70½ years old at the time of the distribution. The contribution must be paid directly from the IRA custodian to an IRS-approved 501(c)(3) public charity—donor-advised funds and private foundations are excluded. QCDs can be used to satisfy required minimum distribution (RMD) amounts for the year, making them especially useful for those who want to support charities while reducing their taxable income and managing their AGI.

QCDs vs. Traditional Charitable Deductions: Key Differences

The advantage of a QCD over a traditional cash donation is that a QCD reduces your AGI directly since the donated amount is excluded from income functioning similar to an “above the line” deduction. In contrast, a regular cash charitable deduction only reduces taxable income “below the line” and does not lower your AGI. This distinction is important, as shown in the following example:

Case Study: Married Couple Using QCDs

A married couple in their 70s has $150,000 in ordinary income before factoring in any Required Minimum Distributions (RMDs). They regularly donate to their favorite charities. This year, they have a $10,000 RMD.

If they take the $10,000 RMD as taxable income and then donate $10,000 in cash, their AGI increases to $160,000. This increase reduces their $12,000 senior deduction by $600, bringing it down to $11,400. At a 22% income tax rate, this results in approximately $132 in additional taxes owed due to the reduced deduction.

However, if they use a Qualified Charitable Distribution (QCD) for their $10,000 donation, the amount is excluded from their AGI. Their AGI remains at $150,000, allowing them to claim the full $12,000 senior deduction and save the additional taxes they would otherwise owe.

In summary, by using QCDs, this couple preserves the entire benefit of their charitable giving while effectively lowering their AGI, which helps maximize other income-related tax benefits and credits.

Who Should Consider QCD Planning Now?

QCDs have long been a valuable tax planning tool for higher-income seniors, especially those seeking to control IRMAA-related Medicare premiums. With the introduction of the new senior deduction, the advantages of QCDs now extend to a broader group of retirees. Even those who haven't previously used QCDs—or who are new to charitable giving—can benefit from the meaningful tax savings this strategy offers. As a result, QCD planning is now a valuable option for many more seniors looking to optimize their overall tax situation.

Note: This strategy is particularly relevant for seniors age 70½ or older with significant retirement savings or income, those who itemize deductions, and anyone whose AGI falls within the $75,000–$175,000 range for single filers or $150,000–$250,000 for married couples filing jointly.