Charitable giving from retirement accounts

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Q. I have a TSP government account and need to take RMD this year. I am told that I cannot send the money directly to a charity. Is this true?
— Retired

A. For the uninitiated, TSP is short for Thrift Savings Plan, which is a defined contribution retirement savings plan for federal employees.

You’re talking about so-called Qualified Charitable Distributions (QCDs), which are only allowed from IRA accounts for taxpayers age 70 ½ and older and up to $100,000.

It cannot be done from other types of plans, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

But there is another option.

You could roll over a TSP to an IRA and then make the QCD from that account.

But, there are some caveats.

“If you have not already taken the Required Minimum Distribution (RMD) for 2016 from the TSP, then you will be required to take it first before rolling the money to an IRA,” Hook said. “It may then make sense to roll it to an IRA in 2016 and then make the qualified charitable distribution in 2017 if you wish for it to satisfy your RMD.”

There are other issues to consider.

Hook said the benefit of making a QCD is that you do not have to include it as part of your adjusted gross income, or AGI. A lower AGI may result in additional tax savings because certain deductions are limited based on the taxpayer’s AGI.

“Even if you are unable to do a QCD, the strategy can still be employed by taking the distribution, withholding no tax and then once the distribution is received sending a check to the charity,” Hook said. “You may lose out on an additional tax benefit by having to include it in AGI but that should not stop you from doing a really nice thing for a worthy cause.”

The other issue, Hook said, is that to do a QCD you actually have to already be age 70 ½.

“This is different than the calculation of which year you must begin taking your RMD, which is the year you turn 70 ½,” he said. “So a mistake sometimes made is someone attempts to do a QCD in the year they turn 70 ½ but prior to actually turning 70 ½. The QCD does not work under that circumstance.”

Email your questions to moc.p1606887757leHye1606887757noMJN1606887757@ksA1606887757.

This post was first published in July 2016. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.