This little-known tax move takes the sting out of RMDs. Yet 90% of Americans are missing it. How not to be one of them

If you’re 73 or older, you have to start taking required minimum distributions (RMDs) from your pretax retirement accounts, whether you need the cash or not. If you skip it, the IRS will hit you with a penalty.

A QCD lets you donate part or all of your RMD directly to charity, fulfilling the requirement while avoiding the tax hit.

“For my philanthropic clients, it’s almost a no-brainer,” said Jim Guarino, CFP and managing director at Baker Newman Noyes (1).

That doesn’t necessarily mean it’s a no-brainer for you too, though. That’s why it can be worth working with a qualified financial advisor, who can walk you through the process and help determine whether it’s the best strategy for you — especially if you have a high net worth in retirement.

With Advisor.com, you can get matched with multiple qualified financial advisors in just minutes.

Just enter some basic information, including your ZIP code, and Advisor.com will match you with fiduciary advisors in your area that can help you create a plan to manage your wealth.

From here, you can then book a free call with no obligation to hire to make sure they’re the right fit for you.

Meanwhile, high-net-worth households may be interested in white-glove financial services that allow you to take advantage of a full spectrum of advisorial advice — from tax segmentation to backdoor Roth IRAs. This is where Range can help you manage, and maximize, your wealth.

Once your net worth enters this ballpark, one of the biggest financial pain points can be asset under management (AUM) fees for your investments. Portfolio managers take a percentage of your managed assets’ value, typically between 0.5% and 2%, of your portfolio — so their fees scale with your wealth.

Range offers 0% AUM fees for advisory services and a flat-fee structure so that you can preserve more of your money. What’s more, they also offer an all-in-one solution for everything from alternative asset management to taxes, informed by modern AI solutions and backed by a team of certified financial professionals.

And the best part? You can book a complimentary demo to see if Range meets your comprehensive financial needs.

Trending: Robert Kiyosaki says this 1 asset will surge 400% in a year — and he begs investors not to miss its ‘explosion’

How to set up a QCD

To make a QCD, you’ll need funds in an IRA — but what if you’re invested in a 401(k) or another type of vehicle instead?

You’ll have to roll over your investments into a traditional IRA. Most 401(k)s and employer plans allow transfers to IRAs, which then become QCD-eligible. Once the funds are in the IRA, you can instruct the custodian to send the donation directly to a qualified 501(c)(3) charity, which keeps the money out of your taxable income (2).

Keep in mind that timing matters. IRS rules generally require rollovers to be completed within 60 days to avoid penalties. Donor-advised funds and private foundations don’t qualify, so double-check the charity before transferring.

By moving your 401(k) or other retirement savings into an IRA first, you could unlock the full tax benefits of QCDs, even if you didn’t start with an eligible account.

Key things to remember:

You have to be at least 70½ when the donation leaves your IRA — keep in mind SEP and SIMPLE IRAs aren’t eligible (5).
Tell your IRA custodian to send the money directly to the charity and not to you.
Verify the organization is a qualified 501(c)(3), as donor-advised funds and private foundations don’t count.
Keep all your receipts and records.

Federally, QCDs are excluded from income, but tax treatment can vary by state. Some states conform fully to IRS rules, while others don’t. Before you move money, double-check with your state’s Department of Revenue or a tax professional.

For retirees who want to give generously and cut their tax bill, QCDs could be a win-win. With a single move, you can satisfy RMDs, keep your income lower and support causes you care about.