Donating Your IRA Required Minimum Distribution
Learn about RMD rules, why you should donate your RMD, and how.
Disclaimer: This information is provided as a public service to highlight a matter of current interest. It is not intended to constitute a full review of any subject matter, nor is it a substitute for obtaining financial or legal advice from an accountant or financial advisor, or an attorney. Information contained within was accurate at the time of publication on December 6, 2021.
You cannot keep money in your employer-sponsored retirement plan(s) indefinitely. Once you reach retirement, you will need to withdraw money from these funds annually. This is a great opportunity to begin or grow your philanthropic giving. This brief overview will explain Required Minimum Distributions and how to donate yours to charity.
What Are Required Minimum Distributions?
The Required Minimum Distribution (RMD) is the smallest amount account holders must withdraw from employer-sponsored retirement plans each year once they reach retirement. If you fail to meet your RMD, the amount not withdrawn will be taxed at 50%.
Who Is Affected By the RMD Rule?
The RMD rules apply to all employer-sponsored retirement plans (including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans). Roth 401(k) accounts are exempt from the RDM rules as long as the owner is alive.
If you are the account owner of one of these types of accounts and will turn 72 years old this year or have already turned 72, you have an RMD. (See exemptions for pre-1987 contributions to a 403(b) plan.)
If you inherited this type of plan after the death of the plan holder, the balance of the account must be distributed within ten years, except under certain circumstances. (Exceptions include a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, or a person not more than ten years younger than the employee or IRA account owner.)
Why Should I Donate My RMD?
If you have an RMD on your own account or an inherited account and you do not need the funds, donating to charity is a great option. Your required withdrawal will be included in your taxable income and cannot be rolled into other tax-deferred accounts. However, donating your RMD is a qualified charitable distribution (QCD) and will not be taxed up to $100,000. Tax benefits aside, earmarking this income for charity is a great way to begin or expand your giving portfolio to support the causes you care about.
How Do I Donate My RMD?
• Calculate your RMD. Use these RMD worksheets to find out what your minimum is this year.
• Plan your withdrawal. Decide which account(s) to make withdrawals from, and how much of that withdrawal you plan to give. You may have an RMD total and certain accounts with individual RMDs; learn more.
• Arrange your donation(s). Choose a qualified 501(c)3 organization, or multiple, to support. This is an opportunity to increase your giving to a favorite nonprofit or find a new organization, or organizations, to donate to. Use Where To Give Now lists to find high-quality organizations serving a range of causes or search for an organization you know of on Charity Navigator to ensure that your money is going to a reliable nonprofit.
• Give your gift(s). Up to $100,000 of your distribution from an employer-sponsored retirement account (including but not limited to your RMD) is a QCD. Make your donation by December 31 to qualify this year.
• Collect your benefits. When you file your taxes for the year, include your donation on the relevant tax document (Form 1099-R, Form 1040, or Form 8606).
• Look ahead to next year. Once you meet the criteria for an RMD, you will have one each year until the account is depleted, barring significant policy changes. This is a good time to start planning how you will distribute next year’s withdrawal. Be aware that changes to the tax code could shift your RMD and related processes year to year.