Once you reach age 70 ½, the IRS requires you to take distributions from your traditional retirement accounts (IRA, 401k, etc.). These distributions are, of course, taxable as ordinary income and go on line 15b of your 1040.

So, what happens if your RMD is larger than what you need to support your lifestyle? Remember, you can’t reinvest your RMD into a Roth account, but you certainly can reinvest it into an after-tax investment account. What about charitable giving?

If you have on-going charitable desires, it can benefit your tax return to make a charitable gift of your RMD.

The laws around using your RMD for charitable gifts used to be passed on a year-by-year basis, but in 2015 the Protecting American from Tax Hikes (PATH) Act was signed into law to make charitable gifts from RMD’s permanent. The term used for this is called a tax-free Qualified Charitable Distribution (QCD).

This law allows the account holder to satisfy their RMD requirement by sending all or part of the distribution directly to the charity – in return – that amount would not be reported as a taxable distribution.

There are some rules to be mindful of. First, the distribution must be addressed to and go directly to the qualified charity, it must come from an IRA (you can’t use SEP, or other employer sponsored plans), and finally, it must not be greater than $100,000 per year.

Let’s say your RMD is $7,500. You could do a QRD for the full $7,500 which would satisfy your RMD and be a tax-free distribution. Or, you could do a QRD for a partial amount, let’s say $5,000. In that case, the $5,000 is tax free but the remaining $2,500 still needs to be distributed and would be taxable.

One important item to remember is that if you are going to do a QCD, generally, it must occur on the first distribution that comes out of your IRA account for that year.

You can click on this link more to read about Qualified Charitable Distribution from the IRS.


Happy Gifting,