These 5 QCD Mistakes Could Cost You Lots of Money
By Carissa Hagen
Imagine this: You’ve discovered the ideal way to support your favorite charity while also reducing your tax bill. You establish a Qualified Charitable Distribution (QCD) from your IRA, feeling great about making a difference, only to later discover that a minor mistake has cost you the tax benefits. Suddenly, what should have been a wise financial move turns into an expensive error.
QCDs are a powerful tool for anyone 70½ or older who wants to give directly to charity while reducing taxable income. And if you’re 73 or older in 2025, a QCD can even count toward your Required Minimum Distribution (RMD), which helps you avoid paying taxes on money you don’t need to keep. But the IRS has strict rules, and a single misstep – like exceeding the contribution limit or sending funds to an ineligible organization – can turn your tax-saving strategy into a taxable mistake.
To make sure your generosity works for you, not against you, let’s go over the five biggest QCD mistakes and how to avoid them. Because when it comes to charitable giving, the only surprises you want are the good kind.
Mistake #1: Exceeding the annual QCD limit
It feels good to donate to charities, but when it comes to QCDs, there is such a thing as too much giving, at least in the eyes of the IRS. For the tax year 2024, the annual QCD limit is $105,000 per person (it will increase to $108,000 in 2025). If you give beyond that, any extra amount is not tax-free and could be treated as regular taxable income.
How to avoid it:
Track your QCDs carefully throughout the year to ensure you don’t exceed the limit.
Are you planning a larger donation? If your generosity surpasses the QCD cap, think about spreading it over multiple years to maximize tax benefits.
Check IRS updates since the limit is now tied to inflation. It may change slightly each year.
Smart giving isn’t just about how much you give but how strategically you do it.
Mistake #2: Donating to an ineligible organization
Not all charities are created equal, at least from a tax perspective. QCDs can only be made to IRS-qualified 501(c)(3) public charities. This means that private foundations, donor-advised funds (DAFs), and certain other organizations do not qualify. Sending your QCD to an unapproved charity won’t just strip you of the tax benefits – it could also leave you with an unexpected taxable distribution.
How to avoid it:
Verify the charity’s status before donating by using the IRS Tax Exempt Organization Search Tool.
Ask the nonprofit directly if they accept QCDs and verify their 501(c)(3) status.
If in doubt, consult a financial advisor before making your donation. My colleagues and I at Allegiant Wealth Strategies are happy to help. Contact us here or call (269) 218-2100.
A good rule of thumb is to confirm before sending your QCD if you’re giving to an organization that also accepts donor-advised funds.
Mistake #3: Failing to follow IRS distribution rules
Here’s where a simple paperwork mistake could cost you significantly. For a QCD to qualify as tax-free, the money must go directly from your IRA to the charity. If the distribution is made payable to you first, even if you intend to pass it along to the charity, it no longer counts as a QCD, which means you’ll owe income tax on it.
How to avoid it:
Tell your IRA custodian to send the funds directly to the charity.
If you receive a check from your IRA, it must be made payable to the charity, not to you.
Keep a paper trail by getting written acknowledgment from the charity for tax reporting purposes.
Skipping these steps could turn your tax-free charitable gift into a costly taxable mistake.
Mistake #4: Missing the year-end deadline
December 31 may seem far off, but time flies, and procrastinating can be costly when it comes to QCDs. If your distribution isn’t completed before the year’s end, it won’t be counted toward your 2025 taxes or RMD.
How to avoid it:
Plan ahead – don’t wait until December to start the process.
Confirm with your IRA custodian that the distribution will be sent on time.
If mailing a check, send it early. Processing delays could push your donation into the next tax year.
This is one deadline you don’t want to procrastinate on. IRS rules are firm, and late distributions will not be counted retroactively.
Mistake #5: Not coordinating your QCD with your RMD
Here’s something that many retirees overlook: a QCD can fulfill part or all of your RMD, but only if you do it first. If you take your RMD before making a QCD, you’ll be taxed on the withdrawal, even if you later donate an equal amount.
How to avoid it:
Complete your QCD early in the year before taking your RMD.
Consult a financial advisor to make sure your QCD entirely offsets your RMD.
If you have multiple IRAs, choose wisely. QCDs may only be made from traditional IRAs, not from 401(k)s.
The key point is that timing is crucial. Submit your QCD first, and you may be able to lower or completely eliminate your taxable RMD.
How to ensure a smooth QCD process
Avoiding these mistakes isn’t difficult if you take a proactive approach. Here’s how to make sure your QCD process goes smoothly and is tax-efficient:
✔️ Keep proper documentation: Get a written receipt from the charity and keep copies of your IRA distribution records.
✔️ Consult a financial advisor. Every tax situation is different, and professional guidance helps ensure you maximize your benefits.
✔️ Double-check IRS rules each year: Laws and contribution limits change, so make sure you’re up to date before making a QCD.
Final thoughts: Give smarter, not harder
Qualified Charitable Distributions are a powerful way to give back while reducing your taxable income, but only if done correctly. While this may seem difficult, it doesn’t have to be. My colleagues and I at Allegiant Wealth Strategies are happy to guide you. Contact us here or call (269) 218-2100.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.