Charitable Donations From an IRA Before Age 70 1/2

Using funds from an Individual Retirement Arrangement (IRA) for charitable giving is a popular strategy. This approach allows savers to support causes they care about using assets accumulated over their careers. The process for making these donations is governed by specific tax rules that can significantly impact the financial outcome for the donor.

Understanding the Qualified Charitable Distribution Age Requirement

A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an IRA to a qualified charitable organization. The primary tax benefit of a QCD is that the distributed amount is excluded from the taxpayer’s gross income. It lowers adjusted gross income (AGI), which can affect other aspects of a person’s tax situation, such as Medicare premiums, and this method is available regardless of whether the taxpayer itemizes deductions.

The foremost requirement for making a QCD is that the IRA owner must be at least 70½ years old at the time of the distribution. The age of a deceased original IRA owner does not confer eligibility to a beneficiary who is under 70½. For those who are of eligible age, a QCD can also satisfy all or part of their Required Minimum Distribution (RMD) for the year. The annual limit for QCDs is $108,000 per person for 2025, and the transfer must be made by the IRA trustee to the charity; if the funds are paid to the IRA owner first, the transaction does not qualify.

The Two-Step Donation Process for IRA Owners Under 70½

For an IRA owner under the age of 70½ who wishes to use their retirement funds for a charitable gift, the process involves two distinct steps. The first action is to take a normal distribution from the IRA. The individual must contact their IRA custodian, the financial institution holding the assets, to request a personal withdrawal, which is treated as a standard distribution. The funds are moved from the retirement account into the individual’s personal bank account.

Once the withdrawn funds are received, the second step is to make a separate donation to the chosen charity. For any donation of $250 or more, it is important to obtain a contemporaneous written acknowledgment from the charity. This document is required by the IRS to substantiate the contribution for tax purposes.

Tax Implications of the Two-Step Process

The financial consequences of this two-step process are substantially different from those of a QCD. The entire amount withdrawn from a traditional IRA is included in the taxpayer’s AGI for the year and is subject to ordinary income tax rates. This increase in taxable income can potentially push the taxpayer into a higher tax bracket.

A significant consideration is the early withdrawal penalty. If the IRA owner is under age 59½ at the time of the distribution, the withdrawal is generally subject to an additional 10% penalty tax on top of the regular income tax. This penalty is reported on Form 5329, and a charitable donation is not one of the exceptions to this penalty.

After making the donation, the individual may be able to claim a charitable deduction, but this is only possible if they itemize deductions on Schedule A of their Form 1040. The standard deduction is a fixed dollar amount that taxpayers can subtract from their AGI to reduce their taxable income. For the 2025 tax year, the standard deduction is projected to be $15,000 for single filers and $30,000 for those married filing jointly.

If a taxpayer’s total itemized deductions do not exceed their standard deduction amount, they will receive no direct tax benefit from the donation. For example, if a single individual under 59½ takes a $10,000 IRA distribution, they will pay income tax and a $1,000 penalty on that amount. If they donate the $10,000 but their total itemized deductions are less than $15,000, they will likely take the standard deduction and get no tax offset for their gift. This outcome contrasts sharply with a QCD, where the distribution is entirely excluded from income, providing a tax benefit without the need to itemize.