Can a 401(k) RMD Be Really Donated to Charity? – Avoid This Mistake + FAQs

Yes, but not directly from a 401(k)—you must use an IRA to do it tax-free. Under U.S. law, only IRAs (Individual Retirement Accounts) qualify for tax-free charitable transfers of RMDs, via what’s known as a Qualified Charitable Distribution (QCD).

If you try to donate straight from a 401(k), the distribution will still count as taxable income. However, with a simple workaround (rolling over funds to an IRA first), you can satisfy your RMD and donate to charity without owing federal tax on that money.

In fact, this strategy is increasingly popular among retirees. After recent tax reforms, nearly 90% of taxpayers now take the standard deduction, meaning most people don’t get a tax break for charitable gifts through itemizing. Using a QCD to donate RMDs provides a tax benefit above the standard deduction.

For example, if you’re in the 24% tax bracket and donate a $50,000 RMD via a QCD, you could save about $12,000 in federal income taxes—all while supporting a good cause.

Federal Tax Implications of Donating RMDs to Charity

Under federal law, RMDs from traditional retirement accounts are generally fully taxable as ordinary income. This includes RMDs from a 401(k). Normally, when you withdraw money from a traditional 401(k), it increases your adjusted gross income (AGI) and potentially pushes you into higher tax brackets or affects other tax calculations (like Medicare premiums or Social Security taxation).

If you then donate that money to a charity, you can take a charitable deduction only if you itemize your deductions on your tax return.

But since most people don’t itemize (especially many retirees with paid-off mortgages and high standard deductions), simply donating your RMD after withdrawing it often yields no tax benefit. You’d still pay tax on the distribution, and the charity donation might not reduce your taxable income.

So how can you donate RMDs tax-free? The IRS provides a mechanism: the Qualified Charitable Distribution (QCD). A QCD allows you to transfer funds directly from an IRA to a qualifying charity without counting that transfer as taxable income. In other words, the distribution is excluded from your income entirely.

Importantly, QCDs count toward your RMD requirement for the year. This means if you direct your RMD (or part of it) from an IRA to a charity via a QCD, you satisfy the RMD rules but owe no federal income tax on that amount.

However, QCDs apply only to IRAs, not 401(k) plans. If your retirement money is in a 401(k), the law does not currently allow a QCD directly from that 401(k) account.

Any distribution from a 401(k) will be taxable to you (except Roth 401(k) qualified withdrawals) regardless of what you do with the money afterward. So, a direct charitable donation from a 401(k) RMD won’t get the special tax-free treatment. But don’t worry—there’s a straightforward workaround: roll over your 401(k) funds to a traditional IRA, then use the IRA to make the charitable distribution.

Let’s break down the key federal tax points:

• Qualified Charitable Distribution (QCD): This is the only method under U.S. tax law to donate RMD amounts tax-free. It’s available to IRA owners age 70½ or older. You can transfer up to $100,000 per year (indexed for inflation, so slightly higher in future years) directly from your IRA to one or more IRS-approved charities. The amount of the QCD is excluded from your taxable income and fulfills your RMD. (For married couples, each spouse with their own IRA can give $100,000, effectively $200,000 combined.)

• 401(k) vs. IRA: A 401(k) RMD cannot itself be a QCD. If you take your RMD from a 401(k), that distribution is taxable. To leverage the QCD benefit, you first need to move the funds from the 401(k) into an IRA. Typically, this means doing a rollover or transfer of your 401(k) balance to a traditional IRA (often after retiring or reaching a qualifying age). Once the money is in the IRA, you can execute a QCD to donate your RMD amount to charity without tax.

• Tax Deduction vs. Exclusion: Donating from an IRA via QCD gives you an income exclusion, not a deduction. This is often more valuable. An exclusion means the distribution never hits your AGI at all (so it won’t affect tax brackets or thresholds). In contrast, a charitable deduction (from donating after you receive a distribution) reduces taxable income only if you itemize, and even then is subject to certain limits (like the deduction cannot exceed 60% of AGI for cash gifts in a year).

• With a QCD, the income is simply not counted, and you don’t need to itemize to get the benefit. This keeps your AGI lower, which can also help you avoid things like higher Medicare premiums (IRMAA surcharges) or the 3.8% net investment income tax if you’re near those thresholds.

• Age Requirements: The donor must be at least 70½ years old at the time of the distribution for it to qualify as a QCD. This is a quirky rule – note that the age is 70 and one-half, not 70 or 72. (Even though the starting age for RMDs has increased to 73 under current law, the QCD age threshold remains 70½.)

• So there’s a period where someone might be 71 or 72, not yet mandated to take RMDs (if born after 1950), but they can still do a QCD from their IRA. Conversely, if you’re younger than 70½, you cannot do a QCD and thus cannot get a tax-free treatment for donating an RMD; any charitable donation from your retirement account would be treated as a normal taxable distribution followed by a donation.

• Annual Limits: Currently, up to $100,000 per person per year can be given via QCD. This limit is per IRA owner, not per IRA or per charity. (Legislation has indexed this cap for inflation starting in 2024, so it may rise over time; for example, it’s $105,000 in 2024, $100,000 was the prior static limit.) If you donate more than that from your IRA in a year, the excess would be treated as a normal distribution (taxable) and a normal donation (deductible under itemizing rules).

• Most retirees won’t exceed this, but high-net-worth individuals should keep it in mind. If your RMD is larger than $100k, you can only shield $100k of it via QCD in a single year – the rest of the RMD would be taxable or needs other planning (though a spouse can also QCD from their own account for another $100k if applicable).

Under U.S. tax law, the only way to donate RMD funds without paying income tax is through a QCD from an IRA. If all your retirement savings are in a 401(k), you can still achieve this by moving the money to an IRA first.

The IRS will treat a direct IRA-to-charity transfer by an eligible person as not taxable, whereas a 401(k) distribution to you (even if immediately given to charity) is taxable income (offset only by a potential deduction). This fundamental distinction drives the strategy for charitably minded retirees.

Federal Tax Example: RMD Donation vs. Regular Withdrawal

Let’s illustrate how the numbers work out with a hypothetical example. Suppose you are 75 years old with a significant traditional 401(k) balance. Your required minimum distribution for the year is $50,000. You’re charitably inclined and want to donate that $50,000 to your favorite qualified charity. Consider three scenarios:

1. No Special Strategy (Take RMD, No Charitable Tax Benefit) – You withdraw the $50,000 RMD from your 401(k) and then give $50,000 to charity out of your checking account. Since it came from a 401(k), that $50k is fully taxable income to you. If you don’t itemize deductions (like many taxpayers), you get no offsetting deduction for the donation. You pay tax on the $50k (at your marginal rate).

2. For example, if you’re in the 24% federal bracket, that’s $12,000 in federal taxes due, despite giving the money to charity. The charity still gets $50k, but you had to come out-of-pocket on taxes, effectively making the donation cost you $62k ($50k to charity + $12k to IRS).

3. Withdraw and Itemize Donation – You take the $50,000 distribution, include it in your income, but you also itemize deductions on your tax return and claim a $50,000 charitable contribution deduction. If you’re able to use the full deduction, it will offset the $50k income, effectively bringing your taxable income back down. In theory, this results in no net increase in taxable income from the withdrawal, so you wouldn’t owe tax on that $50k. However, this scenario requires that you itemize and that the deduction isn’t limited.

4. In practice, using a $50k charitable deduction might not be fully beneficial if your other itemizable expenses are low. (For instance, if your standard deduction is, say, $30k for a married couple over 65, and aside from the donation you only have $20k of other deductions, part of that $50k donation just goes to meeting the standard deduction threshold, not providing additional tax benefit.)

5. Also, high charitable gifts can be limited to 60% of AGI (though $50k usually fits under that for many). So, while this route can eliminate tax on the RMD, it’s often not as clean or beneficial as a QCD – especially for those who don’t consistently itemize every year.

6. Qualified Charitable Distribution (Tax-Free RMD Donation) – Instead of taking the RMD personally, you first roll your 401(k) money into an IRA (or if it’s already in an IRA, you use that). You instruct the IRA custodian to send $50,000 directly to the charity as a QCD. The $50k never hits your bank account.

7. Result: The $50,000 is excluded from your income altogether. It satisfies your RMD requirement for the year, but your federal taxable income doesn’t include that amount at all. You don’t get an itemized deduction for the gift – but you don’t need one, since you never had to count the income. In our tax bracket example, this saves you that $12,000 in federal tax compared to scenario 1. It also keeps your AGI $50k lower than it would have been, which can have side benefits (like potentially avoiding a Medicare premium hike or keeping more of your Social Security untaxed).

For a quick comparison, here’s how each scenario affects a $50,000 RMD in terms of taxable income and taxes, assuming a 24% tax bracket:

In both the standard deduction case and no donation case, the outcome is the same – the $50k RMD is fully taxed. With itemizing, the tax can be eliminated, but only if you can use the full $50k deduction effectively. The QCD route cleanly avoids tax without any deduction needed.

As you can see, the QCD method is the most straightforward way to ensure a $50,000 charitable gift costs you $0 in taxes, regardless of whether you normally itemize or not. The itemized deduction approach can yield a similar result for some, but it depends on your overall tax situation and requires you to file a more complex return.

Plus, a QCD’s AGI reduction can be beneficial beyond just income tax (affecting things like medical expense deduction floors, phase-outs, and other income-based calculations).

How to Donate a 401(k) RMD to Charity (Step-by-Step)

Now that we know the only tax-free way to donate RMDs is via an IRA, let’s outline how someone with a 401(k) can actually execute this strategy. It typically involves a rollover from a 401(k) to an IRA and then making a QCD. Here’s a step-by-step game plan:

1. Confirm You’re Eligible for a QCD – Ensure you (or the account owner) meet the age requirement of 70½. Also, verify that the charity you plan to support is an eligible 501(c)(3) organization (most public charities qualify; note that donor-advised funds and private foundations are generally not eligible for QCDs). You should also have a traditional IRA set up (Roth IRAs aren’t useful for QCDs because their distributions are already tax-free and Roths have no RMDs; plus QCD rules technically allow Roth IRAs but it’s moot in most cases).

2. Take Any Required RMD from the 401(k) for the Current Year – If you are already in a year where you must take an RMD from your 401(k) (generally the year you turn 73 or retire after that age, unless you qualify for an exception by still working for that employer), you typically need to take that RMD before rolling over the rest to an IRA. This is a crucial rule: the IRS does not allow you to roll over your RMD itself into an IRA. For example, if your 401(k) is subject to a $50k RMD this year, you must withdraw that $50k to yourself first (and unfortunately that portion will be taxable this year).

3. After that is done, you can proceed to the next step with the remaining balance. (If you are doing this planning in the year you retire or beforehand, you might roll over before the year you have to take an RMD from the 401(k), avoiding this issue. But if an RMD is already due from the 401(k) for the year, you can’t avoid taking it.)

4. Roll Over Your 401(k) to a Traditional IRA – Contact your 401(k) plan administrator and initiate a direct rollover of the 401(k) assets into a traditional IRA. This is typically a trustee-to-trustee transfer (so it doesn’t come via you). By moving the funds to an IRA, you are positioning them to become eligible for QCD treatment.

5. Note: if you are still working and over RMD age, some plans allow you to roll over a portion or do an in-service withdrawal; however, many people do this after retiring. Also, if you happen to have other IRA accounts already with enough balance, you could satisfy RMDs from those via QCD without rolling over the 401(k) immediately. But ultimately, any money in a 401(k) can’t go directly to charity tax-free, so eventually you’d want it in an IRA to use this strategy.

6. Execute a Qualified Charitable Distribution from the IRA – Once the funds are in a traditional IRA, instruct your IRA custodian to make a direct transfer to your chosen charity. Typically, the IRA provider will either send a check directly to the charity on your behalf or send the check to you made out to the charity, which you then forward or deliver. The key is that the distribution check is made out to the charitable organization, not to you.

7. This ensures the IRS will recognize it as a QCD. You can use the QCD to cover your RMD obligation: for instance, if you haven’t taken any RMD yet from this new IRA, the QCD amount will count toward it. You can do QCDs for any amount up to $100,000 in the year (and it can be split among multiple charities if desired). Make sure to keep the receipt or acknowledgement letter from the charity – you’ll need that for your records (and if the IRS audits, to prove the distribution went to a qualified charity).

8. Report the QCD on Your Tax Return Properly – Even though a QCD is non-taxable, it still gets reported. Your IRA custodian will send you a Form 1099-R showing the distribution. It won’t specifically say it was a QCD; it will look like a normal taxable distribution in terms of coding. It’s up to you on your tax return to indicate that the distribution was a QCD and therefore is excluded from income.

9. On Form 1040, you would include the total IRA distribution on line 4a (for example) and then on 4b (taxable amount) you’d put $0 for the QCD portion, writing “QCD” in the margin or checkbox if filing electronically. In summary, ensure your CPA or tax software knows that distribution was a qualified charitable distribution. This final step cements your tax-free treatment.

Following these steps, you will have successfully donated your 401(k) RMD to charity in a way that’s compliant with U.S. law and optimized for taxes. Essentially, you’ve funneled the money through an IRA to take advantage of the charitable rollover provision.

Alternate Approach (When IRA Rollover Isn’t Possible): If for some reason you cannot roll your 401(k) into an IRA (for example, if you’re still working and your plan doesn’t allow in-service rollovers, or you prefer not to roll over), your only way to donate your 401(k) RMD is the conventional route: take the distribution, then donate it and attempt to deduct it.

Just remember this will require you to itemize deductions to get any tax benefit, and many retirees find they don’t have enough deductions to exceed the standard deduction every year. You might consider “bunching” charitable contributions (donating several years’ worth in one shot, perhaps to a donor-advised fund) in the RMD year to make itemizing worthwhile.

But compared to the simplicity of a QCD, this approach is less efficient. If charitable giving with RMDs is a priority, rolling over to an IRA is usually the better long-term solution.

State Tax Nuances: How Different States Treat RMD Donations

Federal tax rules get most of the attention, but what about state taxes on your RMD if you donate it? The good news is that in many cases, state tax treatment will mirror federal treatment, but there are some nuances to be aware of based on where you live:

• States With No Income Tax: If you reside in a state with no state income tax (for example, Florida, Texas, Nevada, Washington, and a few others), then whether or not you do a QCD won’t affect state taxes because you wouldn’t be taxed on retirement distributions at the state level anyway. In these states, the benefit of donating your RMD is purely a federal matter (plus personal satisfaction), since there’s no state income tax to worry about.

• States That Exempt Retirement Income: Some states tax income generally but exclude or partially exclude retirement distributions (pensions, IRAs, 401(k)s) from taxation. For instance, Illinois and Mississippi exclude most retirement income from taxation entirely, and Pennsylvania excludes retirement distributions after age 59½. If you live in one of these places, your 401(k) RMD might not be subject to state tax regardless of what you do.

• Donating it via QCD wouldn’t change your state tax because that distribution wasn’t going to be taxed by the state in the first place. Again, the primary benefit is federal. However, it’s important to verify the specifics: some states have caps or conditions on these exclusions (e.g., a certain amount of pension might be excluded, or only if income is below a threshold, etc.).

• States That Tax Retirement Income and Follow Federal AGI: Many states (like California, New York, and others) fully tax traditional retirement account distributions and use your federal AGI as the starting point for state taxable income. In these states, a QCD can deliver a double benefit: by keeping the distribution out of your federal AGI, you also keep it out of your state taxable income.

• So, if you live in a high-tax state like California (top state tax rate 13.3%) or New York (around 8.8% top rate), a $50,000 QCD not only saves you federal tax, it can also save you thousands in state income tax that you would have owed if you took the RMD normally. If instead you took the RMD and gave to charity with a deduction, you’d have to navigate the state’s rules for deductions.

• California, for example, allows charitable deductions if you itemize on your state return, but since the federal standard deduction is large, you might not be itemizing at the state level either (California doesn’t allow a separate state standard deduction – it mostly follows the federal itemization choice). So a QCD simplifies this: no income to report, no deduction needed.

• States With Special Charity Rules: A few states have unique provisions. For example, Colorado offers a charitable deduction or credit outside of itemizing, and Arizona has tax credits for gifts to certain charities. These might not directly interface with QCDs, but they can affect how beneficial a normal donation would be on your state return.

• In general, because a QCD bypasses income, you won’t need to worry about claiming a deduction on the state return at all. Most states simply start with federal AGI and then have a few adjustments. If the QCD isn’t in your AGI, you’re set for state.

• States Requiring Their Own Adjustments: If your state doesn’t automatically recognize the QCD exclusion (very rare, but if a state decouples from certain federal provisions), you might have to manually adjust. Almost all states, however, would accept that if it’s not in federal AGI, it’s not in state income either. As an extra precaution, you could check if your state’s tax instructions mention qualified charitable distributions or IRA distribution adjustments. The vast majority follow federal treatment.

Key takeaway: In most scenarios, a QCD will also save you state income tax in any state that taxes retirement income, because it keeps the RMD out of both federal and state taxable income. The exceptions are states that wouldn’t have taxed that income to begin with (no income tax or special retirement exclusion).

If you do the alternative (taxable distribution then itemize donation), you’d have to see if your state even allows itemized deductions. Some states don’t allow itemized deductions at all or have their own system. For example, Massachusetts has no itemized deductions for charity on the state return – charitable contributions aren’t deductible there. In such a state, a QCD is far superior because a normal charitable deduction wouldn’t give any state tax relief.

In summary, donating your RMD via QCD tends to simplify state taxes – it either has no effect (in states where there was no tax anyway) or it provides a clean exclusion (in states that piggyback on federal AGI). Always check your own state’s rules or consult a tax advisor if you’re unsure, but you’ll generally find QCDs very state-tax-friendly.

Avoid These Common Mistakes When Donating RMDs

When attempting to donate RMDs to charity, people can trip up on some frequent pitfalls. Here are the common mistakes to avoid, and how to do it right:

• Mistake 1: Thinking You Can Do a QCD Directly from a 401(k) – Many retirees first hear about the tax benefits of QCDs and assume they can use it on any retirement account. It’s an easy mistake: a 401(k) distribution and an IRA distribution feel similar from the account owner’s perspective.

• But as emphasized, the IRS only allows QCDs from IRAs (and certain inherited IRAs, SEPs, SIMPLEs under specific conditions). If you try to send your 401(k) RMD to a charity without moving it to an IRA, it won’t qualify. Avoidance: Roll over your 401(k) funds to an IRA before doing the charitable transfer, or if already distributed, know that it’s taxable and plan to deduct it if possible. Don’t assume your 401(k) plan administrator will automatically treat a distribution as charitable—they won’t.

• Mistake 2: Not Satisfying the RMD Before Rollover – This one is subtle but important. If you are in the first year you have an RMD from a 401(k) (say you just turned 73 this year), you must withdraw that year’s RMD amount from the 401(k) before rolling the rest to an IRA.

• Some people try to do a direct rollover of their entire 401(k) balance to an IRA to then do QCDs, but the portion that was required for that year is considered ineligible to roll. If you accidentally roll over an RMD, it’s treated as if you never took the RMD (potentially subject to penalty) and the rollover could be partially invalid.

• Avoidance: Calculate your required distribution from the 401(k) for the year, take that out to yourself first (and yes, you’ll pay tax on that bit), then roll the remainder to the IRA to use for QCDs in future years.

• Mistake 3: Missing the Age Requirement or Timing – Remember, the donor must be 70½ or older at the time of the distribution for a QCD. A common error is attempting a QCD in the year you turn 70½, but doing it before your half-birthday.

• For example, if you turn 70 in February and 70½ in August, a distribution in June won’t qualify as a QCD, even though it’s the calendar year you reach 70½ – you have to wait until August for the QCD.

• Avoidance: Time your distribution for when you are actually at least 70.5. Also, ensure the check to the charity is cashed by the charity in the same year if possible, to clearly count for that tax year’s RMD/QCD (mail it well before year-end).

• Mistake 4: Taking the Distribution Personally, Then Donating – To count as a QCD, the funds must go directly from the IRA to the charity. If the IRA custodian makes the check payable to you and you then write your own check to the charity, that is not a QCD. It becomes a normal taxable distribution (with a possible deduction). There is an exception: many IRA custodians will send the check to you but payable to the charity’s name – that’s okay, because the money is never actually under your control or deposit. But if you deposit the IRA distribution into your account, it’s too late to call it a QCD.

• Avoidance: Always designate the payment to be made out to the charitable organization. Work with your IRA provider; they often have forms specifically for QCD requests.

• Mistake 5: Donating to an Ineligible Recipient – Not all charitable organizations qualify for QCDs. Eligible charities are generally those that qualify for a full charitable deduction: public charities, 501(c)(3) nonprofits like churches, universities, hospitals, etc.

• Ineligible recipients include donor-advised funds, private foundations (most cases), and supporting organizations. Also, giving to a charity in exchange for something (like a charity auction or tickets) doesn’t count – it must be a outright gift.

• Avoidance: Verify the charity’s status. If it’s a donor-advised fund you love, consider using other money for that and reserve the IRA QCD for direct gifts to operating charities. When in doubt, ask the charity if they are a qualifying public charity for QCD purposes (most will know).

• Mistake 6: Exceeding the QCD Limit – If you mistakenly give more than $100,000 (or the current indexed limit) from your IRA as QCD in a year, the excess over the limit will be treated as a normal taxable distribution. While giving more to charity isn’t a bad thing, you might be expecting it all to be tax-free and then get a surprise.

• Avoidance: Keep track of how much QCD you’ve done in the calendar year across all IRAs. If you’re married, remember the $100k is per person, not combined, so don’t accidentally attribute more to one spouse.

• Mistake 7: Double-Dipping Deductions – Some people get confused at tax time and try to claim a charitable deduction for their QCD amount. Remember, you cannot deduct a QCD as a charitable contribution, because it was never counted in your income in the first place. Attempting to deduct it would be double-counting and is not allowed.

• Avoidance: When itemizing, exclude any QCD amounts from the Schedule A charitable deduction. Essentially, you either exclude via QCD or include and deduct, but not both. Generally, if you do a QCD, you’re likely taking the standard deduction or your other itemized deductions exclude that gift.

• Mistake 8: Ignoring the Paperwork and Reporting Details – While QCDs aren’t taxed, they aren’t “invisible.” Failing to properly report the QCD can lead to IRS letters or confusion. Avoidance: Keep the charity’s acknowledgement letter. On your 1040, make sure to write “QCD” next to line 4b (for IRA distributions) or follow your software’s steps to mark it as a QCD. Don’t just leave it blank. Additionally, ensure the 1099-R from your IRA is accounted for (the form won’t mention QCD, but you handle that in reporting).

• Mistake 9: Overlooking New Legislative Rules – Recent changes (like those in the SECURE Act) added a twist: if you make traditional IRA contributions after age 70½, those contributions will reduce the amount of QCD that can be tax-free. This rule was put in place to prevent people from contributing to an IRA for a tax deduction and then immediately doing a QCD to effectively get a double benefit. For example, if you contributed $7,000 to your IRA at age 71 (a deductible contribution), and later want to do QCDs, the first $7,000 of QCD you do will not be tax-free (it will be offset as if it’s distributing that contribution).

• Avoidance: If you are still working or otherwise contributing to a traditional IRA past 70½, be mindful that you’ve effectively reduced your QCD benefit by the amount of those contributions. Plan accordingly—some might choose to skip new contributions or use Roth contributions if the goal is to maximize QCD potential.

By steering clear of these common mistakes, you can ensure that your charitable gifts via RMDs go smoothly and deliver the intended tax savings. When in doubt, consult with a financial advisor, tax professional, or the IRA custodian’s support team. This is a generous act, and a little attention to detail will keep it hassle-free with the IRS.

IRS Rules and Recent Legislative Changes (What to Know)

The ability to donate RMDs to charity through an IRA is a result of specific laws and IRS rules. Staying informed about these can help you optimize your strategy and anticipate changes. Here’s a deep dive into IRS guidance and legislation over the years related to charitable distributions:

• Origins of QCD (Pension Protection Act of 2006): The QCD provision was first introduced as a temporary measure in 2006 under the Pension Protection Act. Congress initially allowed IRA owners over 70½ to make tax-free charitable transfers for 2006 and 2007 only. The idea was to encourage philanthropy from seniors’ IRAs. Because it was popular, this provision was extended several times in short increments (often one or two years at a time, sometimes even retroactively).

• Making QCDs Permanent (PATH Act of 2015): After almost a decade of being renewed piecemeal, the Qualified Charitable Distribution rule was made permanent in late 2015 by the Protecting Americans from Tax Hikes (PATH) Act. This gave retirees certainty that they could incorporate QCDs into long-term planning without worrying the option would disappear. The permanent rule was set at $100,000 maximum per year, age 70½ eligibility.

• IRS Guidance: The IRS has provided guidance on QCDs primarily through publications and instructions. IRS Publication 590-B (which covers distributions from IRAs) explicitly covers QCD rules each year. The IRS has consistently clarified that QCDs are NOT available from employer-sponsored plans like 401(k)s or 403(b)s – only IRAs (and optionally inactive SEP or SIMPLE IRAs) qualify.

• The IRS also spells out reporting: the taxpayer must report the full distribution and then the taxable amount after QCD exclusion. The IRS’s stance is straightforward: If you meet the criteria and follow the process, the QCD amount is excluded from income. If not, it’s taxed.

• Tax Cuts and Jobs Act of 2017 (TCJA): While this law didn’t directly change QCD rules, it indirectly made QCDs more valuable by drastically increasing the standard deduction and limiting certain itemized deductions from 2018 onward. As mentioned, the percentage of older taxpayers itemizing dropped sharply. The IRS saw increased interest in QCDs since they became one of the only ways to get a tax break for charitable giving without itemizing.

• The QCD rules remained unchanged during this time, but it’s notable that more people started taking advantage of them as a result of the TCJA changes to deductions.

• SECURE Act of 2019: The SECURE Act (Setting Every Community Up for Retirement Enhancement Act, enacted in late 2019) brought two relevant changes:

  1. RMD age increase – It raised the beginning age for RMDs from 70½ to 72 (for those who turned 70½ after 2019). This means many people wouldn’t need to take RMDs until a bit later. However, the QCD age did not change; it stayed at 70½. This created a situation where, for a couple of years (ages 70½ to 72), one could do QCDs even though they weren’t yet required to take RMDs. The SECURE Act essentially allowed more flexibility: charitably inclined seniors could start QCDs at 70½, potentially reducing their IRA balances before RMDs even kicked in at 72.
  2. IRA Contributions at Older Ages – The Act removed the age limit for contributions to a traditional IRA (formerly one couldn’t contribute after 70½). Now, as long as you have earned income, you can contribute to an IRA at any age.
  3. But to prevent abuse, Congress added that formula we discussed: any post-70½ deductible contributions to an IRA will reduce your ability to exclude QCD amounts. The IRS implemented this rule starting in 2020. Practically, when you do your taxes, there’s a worksheet to figure how much of your QCD is taxable if you made such contributions. It’s an uncommon situation, but important for those still working or those who contribute to spousal IRAs after 70½.
  • The SECURE Act did not extend QCD treatment to 401(k)s or other plans. Those remained untouched – so the separation between IRAs (eligible for QCD) and 401(k)s (not eligible) continued.

• 2020 CARES Act: In response to COVID-19, the CARES Act temporarily waived all RMDs for the year 2020. People didn’t have to take an RMD that year. It also allowed, for that year, up to $300 per taxpayer of charitable contributions to be deducted above the line (a one-time allowance for non-itemizers) and even 100% of AGI charitable deductions if cash to public charities.

• These were unique measures for 2020 (and slightly into 2021 for some provisions). How did it affect QCDs? Even though RMDs weren’t required in 2020, one could still do a QCD that year (age 70½+). The only difference was there was no RMD obligation to satisfy, but you could still give from your IRA tax-free. The IRS in guidance confirmed QCDs were permitted in a year without RMDs.

• The above-the-line $300 deduction was separate – interestingly, if someone did a small charitable gift and took the $300 deduction in 2020, they could still do QCD for larger gifts. That $300 option expired after 2021 (it was $300 single, $600 joint in 2021). Now we’re back to needing to itemize for any deduction, which makes QCDs as valuable as ever for non-itemizers.

• SECURE Act 2.0 (2022): At the end of 2022, Congress passed another retirement reform package often called SECURE 2.0. It included a few updates:

  • RMD age increased further: Starting in 2023, the RMD beginning age rose to 73 (for those born 1951-1959), and it will rise to 75 for those born 1960 or later (starting in 2033). This means future retirees can delay mandatory withdrawals longer. However, QCDs are still allowed from 70½ onward.
  • So now someone could have a sizable gap (70½ to 73, or eventually to 75) where they can chip away at their IRA via QCDs before RMDs formally start. This could be a planning opportunity: even if you don’t have to take money out yet, you can voluntarily do QCDs to support charities and reduce future RMD amounts.
  • QCD limit indexing: That $100,000 annual cap per person for QCDs is now indexed for inflation from 2024 onward. That’s why you’ll see figures like $105,000 for 2024, $107k or $108k perhaps in 2025, etc. The IRS will announce the new limit each year. This change acknowledges that the $100k limit, unchanged since 2006, needed a cost-of-living adjustment over time.
  • One-time QCD to split-interest entity: Secure 2.0 introduced a new provision allowing a one-time QCD (up to $50,000) to a special kind of charitable vehicle, such as a charitable remainder trust (CRT) or a charitable gift annuity (CGA) or charitable remainder unitrust. Essentially, it lets you fund a plan that provides you (or someone you choose) income for life, with the remainder going to charity, using IRA funds as a QCD.
  • The benefit is you get a partial tax-free treatment (the transfer up to $50k is QCD, but because you retain an income interest, it’s not fully charity – however, the law treats that $50k as satisfying the QCD). This is a complex option and only can be done once, but it’s now available.
  • The IRS will be ironing out details on how to report and handle it. It doesn’t directly relate to a straightforward donation of RMD to charity, but it could be useful for someone who wants to both donate and still get some income back (albeit the $50k limit is modest). It’s another arrow in the quiver for advanced charitable planning with IRAs.
  • Roth 401(k) RMDs eliminated: While not directly about charity, note that SECURE 2.0 also eliminated RMD requirements from Roth 401(k)s (starting 2024). Traditional 401(k)s still have RMDs, but if you have a Roth 401(k), you won’t be forced to take money out at 73.
  • This might influence some to roll Roth 401(k) to Roth IRA or just keep it. Again, Roth distributions to charity yield no extra tax benefit because they’re already tax-free (you’d be better off giving taxable IRA money and keep Roth for heirs, in most cases).

• IRS Compliance and Audits: The IRS has generally been supportive of QCDs and we haven’t seen major controversy around them. One thing the IRS watches is that people properly report QCDs – failing to do so might trigger automated under-reporter notices (since the 1099-R looks taxable if they don’t see the QCD note on the return). So it’s more a matter of correct filing than any dispute about legality.

• Provided you follow the rules, the IRS is essentially neutral – you’re giving your money to charity, after all, not pocketing it, so there’s no tax avoidance scheme beyond what Congress intended. Just be sure to get that acknowledgment letter from the charity (the same letter you’d need for any donation of $250 or more) and keep it with your tax records.

In summary, legislative changes in recent years have expanded opportunities for using QCDs (making them permanent, raising limits, adding new twists), but none have opened up 401(k)s or other plans for direct QCDs. The IRS enforces the distinctions carefully.

So as of now, and for the foreseeable future, IRAs are the primary vehicle for charitable RMD planning, with Congress encouraging this type of giving by adjusting limits upward over time.

Staying informed about these rules helps you adapt your strategy. For example, knowing that you can start at 70½ even if RMDs start later, or that you and your spouse can potentially give $200k combined, or that you might leverage the one-time $50k CRT option if it suits your goals—all these come from understanding the current law landscape.

Always check for the latest IRS publications or consult a professional for the tax year you’re in, since limits and details can update (especially with the new inflation-indexed cap). But the core idea remains steady: the U.S. tax code encourages retirees to donate IRA withdrawals to charity by making them tax-free, as long as you follow the rules.

Pros and Cons of Donating RMDs to Charity

Like any financial strategy, using your RMDs for charitable giving comes with advantages and potential drawbacks. Here’s a quick comparison of the pros and cons:

As you can see, many of the “cons” are not so much pitfalls as they are trade-offs or requirements. For someone who is charitably inclined in the first place, the advantages of QCDs and RMD donations usually far outweigh the downsides. The key is ensuring that you truly can part with the money (i.e., you have enough other funds for your living expenses and goals) and that you set it up correctly. If philanthropy is not a priority or you need every dollar of your RMD for yourself, then this strategy isn’t appropriate, of course.

Comparing RMD Charity Donations with Other Retirement Strategies

Donating your RMD to charity via a QCD is just one strategy in the retirement toolbox. How does it stack up against other approaches? Here we’ll compare it to a few common alternatives and complementary strategies:

• Qualified Charitable Distributions vs. Leaving IRA to Charity at Death: One way to ensure your retirement assets benefit charity is to name a charitable organization as the beneficiary of your IRA so that when you pass away, those funds go directly to charity.

• This is actually very tax-efficient for estate planning because the charity, being tax-exempt, can receive the IRA without anyone paying income tax on those distributions (whereas if your kids inherited that traditional IRA, they’d have to pay tax on withdrawals). The difference is timing and control. Using QCDs during your lifetime lets you enjoy seeing your gifts put to work and gives you an immediate income tax benefit each year. It also gradually lowers your IRA balance (possibly reducing future RMDs and future taxes).

• Leaving an IRA to charity at death yields no benefit to you during life (other than the peace of mind of a planned legacy). Many high-net-worth philanthropists actually do both: they’ll designate a portion of their IRA to charity in their will and do QCDs annually. In summary, leaving an IRA to charity is great for estate planning (especially if you want to spare heirs from heavy taxes), but QCDs allow you to reap tax rewards now and experience your philanthropy in real time.

• Donating Appreciated Stock vs. Donating IRA RMDs: If you have a taxable investment portfolio with stocks or mutual funds that have gone up in value, a classic tax-savvy move is to donate appreciated securities to charity. By doing so, you avoid paying capital gains tax on the appreciation and you can deduct the full fair market value as a charitable deduction (if you itemize).

• How does this compare to QCDs? Both strategies avoid a tax (capital gains tax in one case, income tax in the other) and help charity. If you’re over 70½ and facing RMDs, often the best approach is to use QCD for some giving and appreciated stock for additional giving – effectively, give from pre-tax IRA money and from highly appreciated assets, and use your cash for yourself or other purposes. If you can only choose one method:

  • For those who cannot itemize, the QCD might be more beneficial because the stock donation’s deduction would be wasted.
  • For those who can itemize and have big gains, a stock donation can pack a double punch (deduction plus no capital gains). Ultimately, consider donating from wherever yields the highest tax saving: ordinary income assets (IRA) via QCD or capital assets via gifting. Many mix both to maximize overall tax efficiency of their giving.

• “Bunching” Contributions and Donor-Advised Funds: If you’re not eligible for QCD yet (say you’re only 68 but want a tax break for giving), one strategy is bunching donations into one tax year to exceed the standard deduction and itemize that year. For example, rather than giving $10k each year to charity (which might not allow you to itemize), you could give $50k in one year and cover 5 years’ worth of donations.

• You could use a Donor-Advised Fund (DAF) to facilitate this: contribute the $50k to the DAF (and deduct it that year), then recommend grants of $10k to your charity each year from the fund. Compared to QCD: bunching with a DAF is useful for those <70½ or those who want to involve family in giving decisions, etc., but it requires you to have the cash or assets to make a large donation in one year and it relies on itemizing. QCD is more straightforward annually once you’re eligible and doesn’t require bunching—each year you can just do it and benefit, no need for a big lump contribution.

• Notably, you cannot use QCD to fund a donor-advised fund (explicitly disallowed), so these strategies have to be separate. Some might do QCDs once over 70½, and still use a DAF for additional giving with other assets.

• Roth Conversions vs. QCDs: A Roth conversion is when you move money from a traditional IRA/401k to a Roth IRA by paying income tax now on the converted amount. People do this to reduce future RMDs (since Roth IRAs have none) and potentially leave tax-free money to heirs. If you are charitably inclined, however, paying a big tax bill to convert might not be as appealing as simply giving away the money to charity tax-free.

• For example, imagine you have a large IRA and you plan to leave much of it to charity or give it gradually. You could either convert, paying say 24% tax now to benefit your heirs with a Roth, or use that IRA for charitable giving via QCD over time, paying zero tax on those distributions (and your heirs might get other assets instead).

• In essence, Roth conversion is a strategy to benefit heirs (and possibly yourself if tax rates rise), whereas QCD is a strategy to benefit charities and get immediate tax relief. Sometimes people do both: convert some to Roth to trim RMDs and also do QCDs each year. One doesn’t preclude the other. But if you’re choosing where to allocate your IRA dollars, it boils down to your goals: family vs charity (with the IRS being the third party in all cases). QCDs at least ensure the IRS gets nothing on those dollars (charity gets it all), which can be emotionally satisfying if you’d rather give to charity than pay taxes.

• Simply Taking RMDs and Investing Them (Taxable Account): What if you don’t need your RMD for spending, but you also don’t necessarily want to donate it? Some retirees just reluctantly take their RMD, pay the tax, and reinvest the remainder in a brokerage account for heirs or future use. Compared to a QCD: doing that means paying perhaps 20-30% (depending on tax bracket) of the RMD to the IRS each year and keeping 70-80%.

• Over time, those tax payments add up, but you do grow a pot of after-tax money which is easier for heirs to inherit (step-up in basis, etc.). If you have philanthropic inclinations at all, you might consider at least using a portion of your RMD for QCDs (save some tax on that portion) and take the rest net for investing.

• It’s a personal decision: QCDs maximize tax elimination (100% of that distribution goes to charity, 0% tax), while taking RMD and reinvesting gives you or your heirs something but with a tax cost. Some find a balance: e.g., donate enough of the RMD to stay in a lower tax bracket or to avoid certain taxes, and keep the rest.

• Charitable Trusts and Gift Annuities: For larger-scale planning, there are instruments like Charitable Remainder Trusts (CRTs) or Charitable Gift Annuities which can be funded with IRA money either during life (after distribution) or at death (via beneficiary designation). These can provide an income stream to you or heirs and then benefit charity later, with certain tax advantages. As noted, SECURE 2.0 even allows a one-time $50k QCD to certain split-interest entities now. These tools are more complex and typically require legal setup.

• Compared to a straightforward QCD: a CRT can generate a partial tax deduction and spread income over time, which might be useful if you have a very large IRA and want to gradually diversify how the money is used. However, establishing a CRT from an IRA distribution would require taking a taxable distribution (unless you use the new $50k provision). Many donors use CRTs at death with IRAs, which essentially replicates the effect of a stretch IRA for a beneficiary while still benefiting charity at the end.

• This is beyond the scope for most, but it’s worth mentioning as an alternative if one’s goals include providing for heirs and charity together. A simple QCD, on the other hand, is easy and benefits charity now, with no strings attached.

In comparing all these strategies, a theme emerges: allocate your dollars in a way that best suits your goals while minimizing taxes. If your goal is charitable giving and you’re over 70½, donating RMDs via QCD is one of the most tax-efficient methods available. If your goal is to maximize inheritance for family, you might lean more on Roth conversions or simply paying tax and investing the rest.

Often, retirees do a combination: give some, keep some, convert some. A holistic plan can incorporate multiple tactics.

The beauty of the RMD-to-charity idea is that it turns a tax obligation (forced withdrawals) into a philanthropic opportunity. It’s one of those win-win provisions where the tax code incentivizes good behavior (supporting charities). When planning your retirement withdrawals, it’s wise to consider all these options together.

Consult with a financial planner or tax advisor who can model scenarios for you: for instance, “What if I donate $X of my RMD each year versus not?” or “Should I convert some IRA to Roth and use the rest for QCDs?” The optimal solution could be a blend, ensuring you take care of your needs, your loved ones, and your charitable interests in a balanced way.

FAQs

Q: Can I donate my 401(k) RMD directly to a charity?
A: Not directly. You must first roll over the funds to a traditional IRA, then use a qualified charitable distribution from the IRA to donate the RMD tax-free.

Q: What is a Qualified Charitable Distribution (QCD)?
A: A QCD allows an IRA owner (age 70½ or older) to transfer up to $100,000 per year from their IRA directly to a qualifying charity, counting toward the RMD and excluded from taxable income.

Q: At what age can I start donating my RMD to charity?
A: You become eligible for QCDs in the year you turn 70½. Even if your RMDs don’t begin until a later age, you can start charitable IRA distributions once you are over 70½.

Q: What’s the maximum amount I can donate via QCD in a year?
A: $100,000 per person per year (this limit is indexed for inflation, so it may increase over time). A married couple with separate IRAs could potentially donate $100,000 each for a total of $200,000.

Q: Do I get a tax deduction for a QCD?
A: No, you don’t claim a charitable deduction for a QCD. Instead, the amount isn’t included in your income at all. This is better than a deduction because it directly reduces your AGI without needing to itemize.

Q: Does a QCD to charity count toward my required minimum distribution?
A: Yes. Any amount transferred via QCD to a charity (up to your RMD amount or more) counts as if you took a distribution for RMD purposes. You won’t be penalized as long as the RMD amount was satisfied between QCDs and any other withdrawals.

Q: Can I do a QCD from my Roth IRA or inherited 401(k)?
A: QCDs are primarily for traditional IRAs. Roth IRAs technically could do a QCD, but since Roth distributions are already tax-free and have no RMDs, there’s usually no need. 401(k)s and 403(b)s are not eligible for QCD treatment; you’d need to roll them into an IRA first. Inherited IRAs can use QCDs if the beneficiary is over 70½.

Q: What types of charities can receive QCDs?
A: Only certain public charities qualify. These include churches, educational institutions, hospitals, and most IRS-recognized public charities. QCDs cannot go to donor-advised funds, private foundations (with few exceptions), or supporting organizations. Always confirm the charity’s status if unsure.

Q: How do I report a QCD on my tax return?
A: Your IRA custodian will issue a Form 1099-R showing the distribution. On your 1040, include the full distribution amount on the line for IRA distributions, then enter the taxable amount as $0 for the QCD portion and write “QCD” next to it. This indicates to the IRS that the distribution was excluded from income due to a qualified charitable distribution.