I f you must take required minimum distributions (RMDs) from your IRAs this year, you may have more flexibility than you think. The distributions can do “double duty” so you effectively don’t have to pay a penny of federal income tax on the payouts.

Strategy: Transfer RMD amounts directly from the IRAs to one or more charitable organizations. These so-called “qualified charitable distributions” (QCDs) come out of IRAs free of any federal income tax hit.

Here’s the whole story: Once you attain age 73, you must begin taking RMDs from your IRAs each year. RMDs for a particular year are based on IRS life-expectancy tables using your age at the end of that year and account balances as of December 31 of the prior year. For instance, RMDs for the 2025 tax year are calculated based on your IRA account balances on December 31, 2024. Normally, the taxable portion of RMDs and other distributions from a traditional IRA are taxed at ordinary income rates currently topping out at 37%. Plus, the distributions may also result in net investment income tax (NIIT) complications by increasing your modified adjusted gross income (MAGI) for this computation. But there is a tax-saving fix. Under a special tax law provision, someone who is age 70½ or older can transfer funds in their IRA directly to a qualified charitable organization, up to an annual limit of $100,000, subject to inflation adjustments. For 2025, the inflation-adjusted limit is $108,000. The limit for joint filers is $216,000 if both spouses have IRAs set up in their respective names ($108,000 for each spouse). Although you can’t claim a charitable tax deduction for a QCD, you’re not taxed on the transfer either. (In any event, only itemizers can deduct charitable contributions.) It’s a virtual “wash” as far as the IRS is concerned. Best of all, the QCD counts toward RMD obligations. For instance, if you’re required to receive a $25,000 RMD in 2025, you can transfer the entire $25,000 to a charity without owing any tax—no muss, no fuss, and that will satisfy your RMD obligation for the year. Failing to take RMDs in time can result in a hefty penalty. Previously, the penalty was equal to a whopping 50% of the amount due. SECURE 2.0 cut it in half to 25%, or 10% if the shortfall is corrected in a timely fashion. Nevertheless, you still want to avoid any penalty for failing to take your RMD on time.

Tip: The QCD strategy doesn’t work for 401(k) or other qualified plan funds.

Share the wealth SECURE 2.0 authorized another tax-efficient option for taxpayers taking QCDs.

Strategy: Include a one-time gift of up to $50,000 to a charitable remainder trust (CRT) or charitable gift annuity (CGA). The provision allowing transfers to CRTS and CGAs took effect in 2023. Unlike the usual QCD, this “split-interest gift” benefits IRA owners financially. While a small portion goes to charity, up to 90% of the transferred value (i.e., maximum of $45,000) can be paid out to the IRA owner over a term of no more than 20 years or their lifetime.

Tip: Consider all the tax and non-tax implications.