What Are Required Minimum Distributions (RMDs)?
Required Minimum Distributions (RMDs) are the minimum amounts that individuals must begin withdrawing annually from certain retirement accounts, starting at a specific age. These rules are set by the IRS and are designed to ensure that tax-deferred retirement savings are eventually taxed.
As of 2025, individuals generally must begin taking RMDs from traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored retirement plans starting at age 73 (or 75 if born in 1960 or later, based on the SECURE 2.0 Act). Roth IRAs are exempt from RMDs during the account holder’s lifetime.
The required amount is calculated annually based on the account balance as of December 31 of the previous year and life expectancy factors provided by the IRS.
Failing to take an RMD can result in a significant tax penalty. While recent legislation has reduced the penalty, it can still be up to 25% of the amount that was not withdrawn (or as low as 10% if corrected by the end of the second year the RMD was due).
Because RMDs are typically taxed as ordinary income, they can increase an individual’s overall tax liability for the year and potentially impact other areas, such as Medicare premiums or eligibility for certain deductions or credits.
Some individuals consider strategies—such as Qualified Charitable Distributions—as a potential way to meet their RMD obligation while managing taxable income. However, these choices depend heavily on individual goals and circumstances and may not be appropriate for everyone.
For individuals over age 70½, Qualified Charitable Distributions (QCDs) may offer a way to give to charitable organizations while potentially addressing certain tax-related considerations. QCDs involve transferring funds directly from an IRA to a qualified charity and, depending on individual circumstances, might help manage required minimum distributions (RMDs) and adjusted gross income.
What Is a Qualified Charitable Distribution?
A Qualified Charitable Distribution is a provision that allows individuals who meet the age requirement to transfer up to a certain amount annually from their IRA directly to a qualifying charitable organization. For some, this transfer can count toward their required minimum distribution (RMD), and it is generally not considered taxable income when done properly. This structure could offer tax advantages for those who are eligible, but the impact may vary based on a person’s broader financial picture.
Key Features
- May reduce taxable income: Since the QCD is not typically included in adjusted gross income, it could help minimize exposure to higher tax brackets or Medicare surcharges.
- Can satisfy RMDs: For individuals required to take RMDs, a QCD may help fulfill that obligation while supporting charitable causes.
- Direct transfer required: The funds must be transferred directly from the IRA custodian to the charitable organization to be treated as a QCD.
Eligibility and Limits
- Age requirement: The account holder must be at least 70½ years old at the time of the distribution.
- Annual limit: As of 2025, the maximum allowable QCD is $108,000 per individual per year. Married couples filing jointly may each make a QCD from their respective IRAs.
- Account types: QCDs are permitted from traditional IRAs and some inactive SEP or SIMPLE IRAs. Other account types may not be eligible.
Considerations and Restrictions
There are several guidelines and limitations that apply to QCDs:
- Eligible recipients: The recipient must be a qualifying 501(c)(3) organization. Donor-advised funds, private foundations, and certain supporting organizations are excluded.
- Timing: To count toward the current year’s RMD, the QCD must be completed by December 31.
- Recordkeeping: Documentation is important. Individuals may wish to obtain a written acknowledgment from the charity for tax reporting purposes.
When QCDs Might Be Considered
QCDs could be an option worth exploring for individuals who:
- Do not itemize deductions but still wish to give charitably
- Are looking to reduce taxable income in retirement
- Have RMDs they may not need for personal spending
However, the suitability of QCDs depends on several factors, including a person’s income level, overall tax situation, and charitable intentions. Outcomes can vary, and not everyone may benefit in the same way.
For those interested in integrating charitable giving into their financial plans, Qualified Charitable Distributions are one possible strategy to explore. Speaking with a financial advisor or tax professional may help determine whether this approach aligns with an individual’s goals and circumstances.
SOURCES:
Qualified Charitable Distributions (QCDs) – Planning your IRA withdrawal | Fidelity. (2025). Fidelity.com.
Retirement Topics Required Minimum Distributions RMDs | Internal Revenue Service. (2017). Irs.gov.
Taylor, K. R. (2021, March 4). Required Minimum Distributions (RMDs): Rules, Deadlines, and Important Changes to Know. Kiplinger.
DISCLOSURE:
This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Please consult your financial advisor before making financial decisions. For more detailed information, contact, a financial advisor with Gregory Ricks & Associates, Inc. offering investment advisory products and services through AE Wealth Management, LLC. (AEWM) Insurance products are offered through the insurance business Gregory Ricks & Associates, Inc. AEWM does not offer insurance products. The insurance products offered by Gregory Ricks & Associates, Inc. are not subject to Investment Adviser requirements. Firm does not offer tax or legal advice. 3078320- 6/25