“One of our retirees who has been taking his required minimum distributions (RMDs) from his 403(b) account now wants us to send it directly to a charity, because he says he read that the RMD would not be taxable if he did this. I’ve never heard of this—could he possibly be correct? If so, what is the procedure to complete such a transaction?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
The participant is incorrect, but the Experts can see why he might be confused!
The reason for the confusion is Individual Retirement Accounts (IRAs) have a feature where individuals have the opportunity to contribute their RMDs from those accounts directly to a charity tax-free, depending on how they file their taxes. However, that feature ONLY applies to IRA’s and NOT to 403(b)s or any qualified retirement plan accounts.
Thus, if the participant in question has an IRA account, he can complete such a transaction from that account, but NOT from his 403(b). Of course the participant could roll his 403(b) plan balance to an IRA to address this issue, but keep in mind that the RMD for the current year CANNOT be rolled over, so he must take that distribution from the 403(b) this year, and it will be taxable. Only the remaining balance after the RMD can be rolled over to an IRA.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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