Reviewed by the Help Dementia Editorial Team — our editors review every article for accuracy against guidance from the National Institute on Aging, the Alzheimer’s Association, and peer-reviewed sources.
If you’re approaching age 73 and concerned about funding dementia care while minimizing taxes, the most direct strategy is to use Qualified Charitable Distributions (QCDs) to donate your required minimum distributions to a qualified 501(c)(3) organization providing dementia or elder care services. This approach allows you to satisfy your IRS-mandated withdrawal while avoiding the income tax spike that would normally push you into a higher bracket and increase your Medicare premiums. For example, if you have a $500,000 IRA and are age 73, your RMD is approximately $18,000.
Rather than taking that $18,000 as taxable income (which could trigger Medicare premium increases and higher Social Security taxation), you can direct it straight to a dementia care nonprofit, satisfy your RMD obligation, and report zero taxable income from the distribution. Beyond the QCD strategy, a new 2026 rule now allows some people to withdraw up to $2,600 per year from certain retirement plans penalty-free to pay for long-term care insurance, which is another tax-minimizing option for those who prefer insurance-based planning. This article covers both strategies, their limitations, and how to coordinate them effectively.
Table of Contents
- How Required Minimum Distributions Create a Tax Cliff at Age 73
- Qualified Charitable Distributions—Turning Your Required Withdrawal Into a Charitable Gift
- The New 2026 Long-Term Care Insurance Distribution Option—An Alternative for Insurance Planning
- QCD vs. Long-Term Care Insurance Distributions—Which Strategy Fits Your Situation
- Eligibility and Plan Limitations—Verify Your QCD Eligibility Before Planning
- Coordinating Your QCD with Other Deductions and Tax Planning Strategies
- Planning for Future Changes—The 2026 Rule and Beyond
- Conclusion
- Frequently Asked Questions
How Required Minimum Distributions Create a Tax Cliff at Age 73
If you’re age 73 or turned 73 in 2025, the IRS now requires you to withdraw at least a portion of your traditional IRA annually—this is your Required Minimum Distribution. The calculation uses your account balance on December 31 of the previous year divided by an IRS life-expectancy factor, which means at age 73, you’re withdrawing roughly 3.7% of your balance annually. This rule was tightened in recent years: the age used to be 72, but the SECURE Act 2.0 pushed it to 73.
The problem isn’t the withdrawal itself—it’s that RMDs are treated as ordinary income, and many retirees suddenly find themselves in a higher tax bracket than they anticipated. This income cliff has cascading effects: if your combined income (including Social Security) exceeds certain thresholds, you’re liable for higher Medicare Part B and Part D premiums through Income-Related Monthly Adjustment Amounts (IRMAA). For example, a married couple with $100,000 in combined income might pay standard Medicare premiums, but if an RMD pushes them to $130,000 in a single year, their premiums jump significantly—sometimes adding $500+ per month for both spouses, retroactively. The timing issue is particularly sharp if you wait until age 73 and delay your first withdrawal: you must take TWO distributions that year (one for age 72, one for age 73), which can spike your income even higher and lock you into elevated Medicare premiums for up to three years.
Qualified Charitable Distributions—Turning Your Required Withdrawal Into a Charitable Gift
A Qualified Charitable Distribution (QCD) is a direct transfer of money from your IRA to a qualified 501(c)(3) charity, and it’s one of the most underutilized tax strategies available to older adults. Starting at age 70½, you can transfer up to $111,000 per year ($222,000 for married couples filing jointly in 2026) directly from your Traditional, Rollover, or Inherited IRA to eligible charities without the distribution counting as taxable income. The magic of a QCD is that it satisfies your RMD requirement while keeping your income level flat. Using the earlier example: that $18,000 RMD can be transferred directly to a qualified dementia care nonprofit, and you’ll report zero income from that distribution, zero Medicare premium increase, and zero impact on your Social Security taxation.
However, the charity must be a qualified 501(c)(3) organization—this includes established nonprofits that provide dementia care, elder services, research institutions, and memory care facilities. The QCD does NOT work with donor-advised funds, private foundations, or donations to churches or religious organizations (though many faith-based senior care facilities do qualify). To use a QCD, you typically contact your IRA custodian (your bank, brokerage, or IRA administrator) and request that they make the transfer directly to the charity’s name. The key word is “direct”—if you take the distribution yourself and then donate it, you’ve lost the tax benefit. Some people hesitate to use QCDs because they think they’ll lose the charitable deduction, but that’s incorrect: QCDs specifically exempt you from counting the distribution as income, which is better than a deduction in most cases.
The New 2026 Long-Term Care Insurance Distribution Option—An Alternative for Insurance Planning
Starting in 2026, there’s a new option for some retirement plan owners: the ability to distribute up to $2,600 per year (or 10% of your plan balance, whichever is less) penalty-free to pay for long-term care insurance premiums, even if you’re under age 59½. This rule is significant because normally, withdrawing from a retirement account before age 59½ triggers a 10% early-withdrawal penalty on top of income tax. Under the new long-term care insurance rule, the 10% penalty disappears, though ordinary income tax still applies. For example, if you have a 401(k) with $200,000 and want to buy a $2,600-per-year long-term care insurance policy at age 58, you can now withdraw $2,600 penalty-free (though you’ll owe income tax on it). However, this rule has a critical limitation that many people overlook: it currently applies only to employer-sponsored plans like 401(k)s, 403(b)s, and some others.
It does NOT yet apply to traditional IRAs, SEP IRAs, or SIMPLE IRAs, despite discussions about expanding it. Additionally, the $2,600 annual maximum is modest, and the rule still counts the distribution as ordinary income (only the penalty is waived), so it doesn’t avoid income taxes the way a QCD does. Another limitation: this rule coordinates with RMDs, meaning if you’re already required to take a larger RMD, the LTC insurance premium counts toward that obligation. If your RMD is $20,000 and you use $2,600 of it to pay for LTC insurance, you still owe a $17,400 distribution. For those who have employer plans and are younger than 59½, this is valuable; for IRA holders or those past 59½ (when you can already withdraw penalty-free), the benefit is minimal.
QCD vs. Long-Term Care Insurance Distributions—Which Strategy Fits Your Situation
Both strategies reduce taxes on retirement withdrawals, but they work differently and suit different financial goals. A QCD is best if you’re already inclined to support dementia care nonprofits or elder care causes; it fulfills your philanthropic intent while satisfying your RMD and avoiding income tax entirely. The upper limit for QCDs ($111,000 per individual in 2026) is also much higher, allowing those with large required distributions to shelter more income from taxation. If your RMD is $25,000 and you want to donate $15,000 of it to a dementia care organization, a QCD lets you do that while only paying tax on the remaining $10,000 you withdraw to keep.
The LTC insurance distribution, by contrast, is suited for people who want to self-insure against long-term care costs by purchasing an insurance policy, and it makes sense primarily for younger account holders (under 59½) with employer plans. Once you’re 59½, withdrawals are already penalty-free, so the new rule offers little additional benefit. The comparison also hinges on whether you value the certainty of insurance benefits (lump-sum payouts or daily benefits from an LTC policy) versus the mission-based approach (knowing your money goes directly to care providers and research). Some financial advisors recommend combining both approaches: use a QCD for a significant portion of your RMD to fund dementia care directly, then purchase a long-term care insurance policy to protect your assets in case you personally need care. This dual strategy spreads your tax planning across different vehicles, reducing concentration risk.
Eligibility and Plan Limitations—Verify Your QCD Eligibility Before Planning
Not every retirement account qualifies for QCD strategies, and this is where many people stumble in their planning. QCDs work with Traditional IRAs, Rollover IRAs, and Inherited IRAs, but NOT with SEP IRAs, SIMPLE IRAs, or IRA-Based Solo 401(k)s (though some custodians have begun allowing them in limited circumstances). If you rolled funds from an old 401(k) into a Traditional IRA, that account is eligible; if you have an old SEP IRA, it is not. The distinction matters because SEP IRAs are common among self-employed individuals and small business owners. Additionally, you must be age 70½ or older to make a QCD, and the IRA custodian must process the transfer correctly (directly to the charity, not to you). Some older custodians have archaic systems and may resist QCDs because they don’t generate account fees—you may need to push back or switch custodians to facilitate the transfer.
Another critical requirement: the 501(c)(3) organization must actually be qualified. You can verify this through the IRS Tax Exempt Organization Search tool, but small nonprofits or newly established dementia care facilities may not yet be in the system. I’ve encountered situations where someone wanted to donate to a locally beloved dementia care home, only to discover it was organized as a for-profit entity or a limited liability corporation, making it ineligible. Before committing to a QCD strategy, spend 10 minutes verifying the charity’s status, and contact your IRA custodian to confirm they can process the transfer. Some custodians will require the charity to request it formally, while others allow direct instructions from account holders. Plan for this process to take 2–4 weeks from start to completion.
Coordinating Your QCD with Other Deductions and Tax Planning Strategies
If you’re using a QCD, you won’t claim a charitable deduction on Schedule A of your tax return—the QCD itself is not deductible because the distribution was never included in your income. This is actually more valuable than a deduction in most cases, because a deduction only reduces your taxable income if you itemize, and many older adults take the standard deduction. QCDs reduce your gross income regardless of whether you itemize. However, if you have other charitable intentions, you need to coordinate carefully.
For example, if you plan to donate $15,000 via QCD and also donate $5,000 out of pocket to another charity, you can only deduct the $5,000 if you itemize your deductions. If the standard deduction is $30,000 and your only other deduction is $5,000, you won’t itemize, and that $5,000 gift provides no tax benefit. Planning multiple strategies at once—QCDs, charitable remainder trusts, donor-advised funds, and other vehicles—requires looking at your complete tax picture. Some retirees discover that a QCD strategy actually bumps them down into a lower Medicare tax bracket or ensures they stay below the modified adjusted gross income threshold for certain tax credits, which can be worth thousands more than the direct tax savings on the QCD itself.
Planning for Future Changes—The 2026 Rule and Beyond
The introduction of the long-term care insurance distribution rule in 2026 signals a growing recognition that paying for care directly from retirement savings can be tax-advantaged. Legislative discussions are ongoing about expanding this rule to IRAs and increasing the annual limit, but don’t count on those changes arriving soon.
For dementia care planning, assume current rules remain in place: QCDs at the $111,000 annual limit (individual) until Congress changes it, and LTC insurance distributions only for employer plan holders. One practical consideration for those planning several years ahead: if you have significant assets and expect multiple decades of RMDs, locking in a charitable giving strategy now through a Charitable Remainder Trust (CRT) or Donor-Advised Fund (DAF) might offer additional flexibility, though these are more complex instruments than a simple QCD. For many dementia care scenarios, the direct QCD approach—giving year by year to qualified dementia care nonprofits—is simpler, more transparent, and easier to adjust as circumstances change.
Conclusion
The most straightforward way to minimize taxes while funding dementia care is to direct your Required Minimum Distribution to a qualified 501(c)(3) dementia care provider via a Qualified Charitable Distribution. This strategy addresses your IRS obligation while avoiding the income tax spike and Medicare premium increases that typically follow a large withdrawal. By keeping your reported income low, you also protect the taxation level of your Social Security benefits and maintain better standing for income-sensitive deductions and credits.
For 2026 and beyond, the new long-term care insurance distribution rule offers a supplemental option for certain plan holders, though its current scope is limited. Before implementing any strategy, verify that your IRA custodian can process QCDs, confirm the 501(c)(3) status of the charity you intend to support, and consult with a tax advisor or financial planner to ensure the approach aligns with your complete financial picture. The tax savings from a well-executed QCD strategy can be substantial—potentially thousands of dollars annually—making the upfront verification work worthwhile.
Frequently Asked Questions
Can I use a QCD if I have a SIMPLE IRA?
No. QCDs work only with Traditional IRAs, Rollover IRAs, and Inherited IRAs. SIMPLE IRAs and SEP IRAs do not qualify, even if they contain funds rolled from old employer plans. If you have a SIMPLE IRA, consider rolling it into a Traditional IRA (many custodians allow this after a waiting period) to unlock QCD eligibility.
Does the long-term care insurance distribution rule apply to IRAs?
Not yet. The new rule applies to 401(k)s, 403(b)s, and some other employer-sponsored plans, but it does NOT apply to traditional IRAs, SEP IRAs, or Simple IRAs. This limitation may change in future legislation, but assume it remains in place for now.
What happens if I turn 73 in 2025 and don’t take my RMD until 2026?
You face a penalty. Your first RMD must be taken by April 1 of the year following the year you turn 73. However, if you delay until April 1, 2026, you’ll owe two distributions in 2026 (one for 2025, one for 2026), which spikes your income and increases Medicare premiums that year. Most advisors recommend taking the first RMD by December 31 of the year you turn 73 to avoid this double-hit scenario.
Can I use a QCD to fund a private dementia care facility (not a nonprofit)?
Only if the facility is organized as a qualified 501(c)(3) nonprofit. For-profit memory care businesses and privately held care homes do not qualify, even if they provide excellent care. Verify the charity status through the IRS Tax Exempt Organization Search before committing to a large QCD.
Are there any limits on how much I can give via QCD in a single year?
Yes. Individual QCD limit is $111,000 per year (2026). Married couples filing jointly can give up to $222,000 combined ($111,000 each). These limits are indexed for inflation and may increase in future years. Once you exceed the annual limit, the excess is treated as a regular taxable distribution.
If my RMD is $20,000 and I give only $15,000 via QCD, do I still owe taxes on the remaining $5,000?
Yes. If you transfer $15,000 via QCD and withdraw $5,000 as a regular distribution to keep, you’ll owe income tax on the $5,000. You can also leave the $5,000 in your IRA to satisfy part of your next year’s RMD (though it still counts toward your annual RMD requirement). The QCD addresses only the portion you transfer directly to charity.
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For more, see National Institute on Aging.
