How Do I Report an RMD to Charity on My Taxes?

Taking required minimum distributions (RMDs) from retirement accounts increases taxable income, potentially leading to a higher tax bill. However, donating these distributions directly to charity through a qualified charitable distribution (QCD) can reduce taxable income while supporting a cause.

Understanding how to correctly report a QCD on your tax return ensures you receive the full tax benefit. Misreporting could lead to unnecessary taxes or missed deductions.

Understanding Required Minimum Distributions (RMDs)

Retirement accounts offer tax advantages to encourage long-term savings, but eventually, withdrawals are required. RMDs are mandatory withdrawals from certain retirement accounts once individuals reach a specific age. The IRS enforces these withdrawals to ensure tax-deferred savings are eventually taxed.

The age at which RMDs begin has changed. Under the SECURE 2.0 Act, individuals turning 73 in 2024 must start taking RMDs by April 1 of the following year. Those born in 1960 or later won’t have to take RMDs until age 75. These rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s and 403(b)s. Roth IRAs are exempt during the account holder’s lifetime.

The required withdrawal amount is determined by dividing the account balance as of December 31 of the previous year by a life expectancy factor from the IRS Uniform Lifetime Table. For example, if an IRA has a $500,000 balance and the life expectancy factor is 25.5, the RMD for the year would be $19,608.

Failing to withdraw the correct amount results in a penalty. Under SECURE 2.0, this penalty was reduced from 50% to 25% of the shortfall and can be lowered to 10% if corrected in a timely manner.

Qualified Charitable Distributions (QCDs) Explained

A Qualified Charitable Distribution (QCD) allows individuals to transfer funds directly from an IRA to a qualified charity, ensuring the amount given does not count as taxable income. This strategy benefits those who do not need their full RMD for personal expenses. Unlike regular charitable donations, which require itemizing deductions, a QCD provides a tax benefit even for those who take the standard deduction.

To qualify, the distribution must be made from an IRA and sent directly to an eligible 501(c)(3) organization. Private foundations and donor-advised funds do not qualify. The donor must be at least 70½ years old at the time of the transfer, regardless of the current RMD age.

The annual limit for QCDs is $100,000 per person, meaning a married couple filing jointly could each make separate QCDs up to this limit. Starting in 2024, this cap is indexed for inflation, meaning it will increase in future years.

A distribution taken personally and then donated does not qualify as a QCD. The funds must be transferred directly from the IRA custodian to the charity. Some custodians issue checks payable to the charity but mail them to the account holder for forwarding. As long as the check is not deposited into the individual’s account first, the donation still qualifies.

Tax Benefits of Donating RMDs to Charity

A QCD reduces taxable income by excluding the donation from adjusted gross income (AGI), lowering overall tax liability and providing additional financial benefits.

Medicare Part B and Part D premiums are based on AGI from two years prior. A high-income retiree may face surcharges known as Income-Related Monthly Adjustment Amounts (IRMAA). By keeping AGI below certain thresholds—$103,000 for single filers and $206,000 for married couples filing jointly in 2024—a QCD can help avoid these extra charges.

Social Security benefits become taxable when AGI exceeds $25,000 for single filers or $32,000 for joint filers. A QCD can help manage this tax burden by keeping AGI lower.

For those subject to the 3.8% Net Investment Income Tax (NIIT), which applies if AGI exceeds $200,000 for individuals or $250,000 for joint filers, a QCD can help keep income below this threshold. Lower AGI can also preserve eligibility for deductions and credits that phase out at higher income levels, such as medical expense deductions, which are only allowed for costs exceeding 7.5% of AGI.

Eligibility Criteria for QCDs

Ensuring a QCD complies with IRS regulations requires attention to eligibility rules. The receiving organization must be a public charity under Internal Revenue Code Section 170(b)(1)(A). Private foundations, supporting organizations, and donor-advised funds do not qualify. The IRS maintains a searchable database of eligible charities, and verifying an organization’s tax-exempt status before initiating a transfer helps prevent unintended tax consequences.

The distribution must come from an eligible IRA. Employer-sponsored plans like 401(k)s and 403(b)s do not qualify unless the funds are first rolled into a traditional IRA. This additional step requires adherence to rollover rules, including the one-rollover-per-year limitation for IRA-to-IRA transfers, to avoid triggering unintended tax liabilities.

The donation must be made in cash. Gifts of securities, real estate, or other assets do not meet QCD requirements.

Reporting QCDs on Your Tax Return

Properly documenting a QCD on a tax return ensures the tax benefit is fully realized. The IRA custodian reports the distribution on Form 1099-R, but the form does not distinguish between a regular distribution and a QCD. It is the taxpayer’s responsibility to correctly indicate the charitable transfer when filing.

The total amount distributed from the IRA appears in Box 1 of Form 1099-R, but Box 2a (taxable amount) is often left blank or marked as “unknown” by the custodian. To report a QCD, the full distribution is entered on line 4a of Form 1040 (or line 5a if from an employer-sponsored plan that was rolled into an IRA). On line 4b (or 5b), only the taxable portion—if any—should be listed, with “QCD” written in the margin. If the entire distribution was a QCD, the taxable amount should be recorded as zero.

QCDs exceeding the RMD for the year do not carry forward to future years. While QCDs reduce taxable income, they do not count as itemized deductions. Attempting to deduct a QCD separately would result in double-dipping, which is not allowed under IRS rules.

Common Mistakes to Avoid When Reporting QCDs

Errors in reporting a QCD can lead to unnecessary taxes or IRS scrutiny. Missteps often occur when taxpayers fail to properly document the transfer or incorrectly report the taxable amount on their return.

One frequent mistake is failing to ensure the distribution was made directly to the charity. If the IRA custodian issues a check payable to the account holder rather than the nonprofit, the IRS will treat it as a taxable distribution, even if the funds are later donated. To prevent this, the check must be payable to the charity from the outset. Taxpayers should also retain acknowledgment letters from the receiving organization confirming the donation, as the IRS requires written proof for charitable contributions.

Another issue arises when taxpayers mistakenly include the QCD amount in their itemized deductions. Since QCDs are excluded from taxable income, they cannot also be deducted on Schedule A. Doing so could trigger an audit or require an amended return. Those who take the standard deduction should still ensure the QCD is reported correctly to benefit from the income exclusion.