As you may already know, the year after you turn 70 ½ the government requires you to start taking distributions from your IRAs. These are called Required Minimum Distributions (RMDs). We have written on how that works elsewhere, but what if you do not need all the money from your RMD and you are also charitably inclined?

Often, retirees count on their IRAs to support or supplement their living expenses, but if you are about to start taking distributions from an IRA and you are interested in giving to charity, you are allowed to give away some or all of your RMD. This is called Qualified Charitable Distribution, or QCDs (yes, there are a lot of 3-letter acronyms in this process!).

Here are the details: You have to be over age 70 ½ to count distributions as Qualified Charitable Distributions, because the assumption is that you’re giving away this money because you need to take Required Minimum Distributions, but you don’t need to keep all the money for yourself and you want to give to a worthy cause.

There is also a cap on the amount you’re allowed to give away: $100,000 per year. You can also only give away money this way from an IRA, not a 401(k) or 403(b), SEP IRA or other employer-sponsored retirement account.

Let’s say you have an RMD for 2016 of $10,000, and you want to give away $5,000 to charity. The $5,000 you give away as a Qualified Charitable Distribution can count toward your Required Minimum Distribution. You cannot count the $5,000 you gave away in 2015 toward 2016’s RMD – each year must count for itself. In this example, you would still need to distribute $5,000 from the account to satisfy your RMD for 2016.

When you want to make a charitable contribution with IRA pre-tax assets, call your custodian and ask them if there’s a form you should use to make the distribution request or what their procedure is for issuing checks to the charity or charities you are supporting with your RMD.

The money will need to go directly from your IRA to the charity; it cannot come to you, or it is not a Qualified Charitable Distribution. The place you give the donation must also be classified as a public charity, not a private foundation or donor advised fund.

In our example at tax time, on the line for IRA Distributions, put $5,000 for the taxable amount and note that the rest ($5,000) was a QCD. Keep as much documentation on the process as possible, in case the IRS asks questions about the procedure. You should also notify the charity that they will be receiving a check and give them the amount, as the check will come from your custodian and may not include your name anywhere.

While giving from an IRA will decrease your RMD and thus the taxes you would pay on withdrawing that amount, it might be better to give to charity with highly appreciated securities, as you can get a deduction and avoid paying capital gains tax on that security. When you give away money from your IRA you do not receive a tax deduction, as you are paying with pre-tax dollars. So which is better? As with most tax questions, the answer is “it depends.”

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