If you are retired and have money in a retirement account, you are probably aware of the new obligation you will need to fulfill when you turn 73: a required minimum distribution, or RMD. That is the minimum amount the IRS requires you to withdraw annually from certain retirement accounts.
This rule is not negotiable, and if you fail to make the RMD, you will be assessed a penalty in the amount of 25 percent of the amount you were supposed to withdraw. The IRS put these rules in place to ensure that people pay the taxes on these tax-deferred savings.
What the RMD rules require
In general, you must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA and retirement plan accounts when you reach age 73. However, there are some caveats.
If you participate in a workplace retirement plan (for example, a 401(k) or profit-sharing plan), and you haven’t retired yet, you can delay making your RMDs until the year you retire — unless you are a 5 percent owner of the business that sponsors the plan.
You are allowed to withdraw more than the minimum required amount. The withdrawals you make are included in your taxable income, except for any part that was already taxed (your basis) or that you can receive tax-free (such as qualified distributions from designated Roth accounts).
Withdrawals from Roth IRAs and designated Roth accounts [401(k) or 403(b)] are not required until after the death of the account owner. However, beneficiaries of Roth IRAs and designated Roth accounts are subject to RMD rules.
We monitor our clients’ RMDs carefully. Those withdrawals could increase your annual income and maybe even push you into a higher tax bracket.
However, there is an easy and legal way to reduce your tax burden while also donating money to charities of your choice.
How a QCD can benefit you and charities of your choice
This strategy allows you to avoid including the QCD amount in your taxable income, which could potentially reduce your tax burden. It also could reduce taxation of your Social Security benefits and could potentially lower your Medicare premiums. In addition, a QCD can reduce the balance in your IRA. That has the potential to lower your RMDs in future years. We will explore all possible benefits for you.
In 2025, individual retirement arrangement (IRA) owners age 70½ or over can transfer up to $108,000 to charity, tax-free through QCDs. The maximum is $216,000 for a married couple if both spouses have IRAs.
These arrangements give eligible older Americans an easy way to donate to charities before the end of the year. And, again, for IRA owners who are at least 73 years old, QCDs count toward their RMD for the year.
Let’s say that your RMD for the next year is $20,000. If you withdraw that amount from your IRA and donate it, or a portion of it, to a charity through a QCD, you won’t pay taxes on the amount you donate. Neither will the charity. If you donate only a portion of your RMD, you must take the remaining distribution amount yourself. This means that if your RMD is $20,000 a year and you direct a $15,000 distribution to go to a charity, you will need to take the remaining $5,000 yourself, and you will pay taxes on just the $5,000.
Once you set up a QCD and identify the charity you want to donate money to, the custodian of your IRA will send the money to the charity. You cannot submit these funds directly to the charity. This is important. If the trustee of your IRA pays the distribution to you first and then you pass it on to a charitable organization, you will lose the deduction.
How to set up a QCD
If you own an IRA and want to make a QCD, contact your IRA trustee. Give him or her enough time to complete the transaction before the end of the year.
You can use the QCD option whether or not you itemize deductions on Schedule A when you file your taxes. You must report a 2025 QCD on your 2025 federal income tax return. Early each year, you should receive a Form 1099-R from your IRA trustee that shows any IRA distributions you made during the previous calendar year.
QCDs are not deductible as charitable contributions on Schedule A. However, as with deductible contributions, you must get a written acknowledgment of your contribution from the charitable organization you donate to before you file your tax return. It needs to state the date and amount of the contribution and indicate whether you received anything of value in return.
You can read more information about this topic in IRS Publication 526, “Charitable Contributions.”
Please don’t DIY this requirement!
Tax laws and rules regarding distributions change often, and there are tax implications that result from every strategy you use in financial planning. We strongly recommend that you consult with a qualified financial advisor and/or tax advisor to determine if using a QCD to satisfy your RMD is the most appropriate strategy for your individual situation. We also want to explore how a QCD might fit into your overall plan for charitable giving. We will ensure proper tax reporting as well.
We have seen very few people who are successful at executing financial- and retirement-planning strategies on their own. We do not recommend that you treat this as a DIY process. If you do not plan your RMDs properly, they could take a bite out of your retirement savings.
Please reach out to us so we can apply some effective RMD strategies. Not only can we potentially reduce your distributions and your tax bill; working with us will reduce your paperwork and worry about fulfilling these obligations.
