September 24, 2023

Dear Dan,

I will be 70 ½ this year and want to use the pretax money for my charity. Can I do this with my 401(k)?

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Dear Paul,

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No, direct donations to charity are not allowed from a 401(k). If you’re still working and your plan allows for service distributions, you can take a distribution and later donate it to charity, but doing so can cost you a lot if you don’t itemize deductions. Little or no tax benefit may be available.

What is the most tax-efficient way to use my required minimum distributions to make charitable donations?

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The better way to donate retirement money is to donate those gifts directly from an IRA through a qualified charitable distribution. If you donated as a QCD from your IRA, all donations were excluded from income, although it was 100% deductible. For those 73 or older, a QCD will count toward a taxpayer’s required minimum distribution (RMD), even if it is distributed tax-free.

If you want to make a QCD but don’t have an IRA, you must first get the money into the IRA. You can transfer retirement accounts from a former employer to an IRA or, if allowed by your current plan, do an in-service distribution and transfer some of your active pretax 401(k) funds to an IRA account. . Your plan’s summary plan description will state whether in-service distributions are allowed.

Once the funds are in an IRA, there are certain requirements to get the tax break:

There are some nuances with QCDs so it’s a good idea to talk to your tax advisor about making these donations. To create a QCD, you request a distribution from the provider that holds your IRA. The check should be made payable to the charity, not you. Regardless of whether the check is made payable to the charity, most IRA providers will give you the option of mailing the check, so you can present the check to the charity in person.

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Alternatively, many IRA providers will provide a checkbook on the IRA for QCD purposes. Just be sure the charity cashes the check before December 31 so that the donation is properly included in the 1099-R issued by the provider.

If you have any questions for Dan, please email him With “Marketwatch Q&A” on the subject line.

Dan Moisand is one Financial planner at Moisand Fitzgerald Tamayo Serving customers nationwide from offices in Orlando, Melbourne and Tampa Florida. His comments are for informational purposes only and are not a substitute for personal advice. Consult your advisor about what is best for you. Some reader questions are edited to aid in the presentation of the subject matter.