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"The QCD is the best charitable giving strategy for IRA owners over 70½ — period. And the NUA strategy is one of the most overlooked tax breaks hiding inside a 401(k). Most advisors don't even mention it."
— Ed Slott, CPA · irahelp.com
Strategy 1 — Qualified Charitable Distributions (QCDs)
QCDs Ed Slott
A QCD is a direct transfer of funds from your IRA to a qualified charity. It counts toward your RMD for the year but is completely excluded from your adjusted gross income — unlike taking the RMD and then making a charitable donation separately.
Who qualifies: IRA owners aged 70½ or older. You do not need to be taking RMDs yet — you can begin QCDs at 70½.
Annual limit: $105,000 per individual in 2024 ($210,000 for married couples with separate IRAs).
The AGI advantage: Because QCDs never enter your AGI, they reduce your exposure to IRMAA Medicare surcharges, lower the taxable portion of Social Security benefits, and keep you in a lower bracket.
Why QCD beats deduction: Taking the RMD and then donating only helps if you itemize deductions. The QCD exclusion works even for those taking the standard deduction — a massive advantage for most retirees.
Transfer must be direct: The check must go directly from the IRA to the charity. If you receive the funds first, the QCD treatment is lost.
Eligible accounts: Traditional IRAs, inherited IRAs, inactive SEP-IRAs, and inactive SIMPLE IRAs. Not available from 401(k)s directly.
Strategy 2 — Net Unrealized Appreciation (NUA)
NUA Ed Slott
If you hold highly appreciated employer stock inside a 401(k), the NUA strategy allows you to distribute that stock in-kind from your plan, pay ordinary income tax only on your original cost basis, and then have the appreciation — potentially a very large gain — taxed at the far lower long-term capital gains rate when you eventually sell.
The tax break: Ordinary income tax is due only on the cost basis (what the employer paid for the stock). The NUA — the gain above cost basis — is taxed at 0%, 15%, or 20% long-term capital gains rates when sold.
Triggering event required: NUA treatment requires a lump-sum distribution triggered by separation from service, reaching age 59½, disability, or death.
vs. rollover to IRA: Rolling employer stock to a traditional IRA is the default — but it means all future withdrawals are taxed as ordinary income. NUA can convert a significant portion to capital gains rates instead.
Who benefits most: Those with highly appreciated employer stock, a relatively low cost basis, and who are in a high ordinary income bracket but would benefit from capital gains rates.
10% early withdrawal penalty: May apply to the cost basis portion if under age 59½ — factor this into the analysis before executing.
QCD vs. standard RMD donation — side-by-side
| Factor | Take RMD, then donate | QCD direct transfer |
|---|
| Counts toward RMD | ✓ Yes | ✓ Yes |
| Included in AGI | ✓ Yes — raises AGI | ✗ No — excluded from AGI |
| Requires itemizing deductions | ✓ Yes — to get any deduction | ✗ No — benefit applies regardless |
| Affects IRMAA thresholds | ✓ Yes — can trigger surcharges | ✗ No — excluded from calculation |
| Affects SS benefit taxation | ✓ Yes — increases taxable SS | ✗ No — lowers taxable SS |
| Annual limit | No limit on donation | $105,000 per person (2024) |
Ed Slott's top tip on QCDs
Do your QCD early in the year — before you take any other IRA distributions. If you take a distribution first and then try to QCD, the IRS treats the first dollars out as the RMD and the QCD cannot retroactively satisfy it. Make the QCD your first IRA transaction of the year.