This question comes up from time to time. Some might point out that “gift” is not a verb, but we’ve all heard it used that way, and everyone knows what it means. In our niche area of fundraising, professional gift planners routinely speak with donors about the possibility of making charitable gifts with funds from qualified retirement plans. The Individual Retirement Account (IRA) is a vehicle in which many Americans hold considerable wealth, and it’s only natural to ask whether some of those funds could be used for charitable gifts. It IS possible to use funds from IRAs and other retirement plans to make gifts to charities, however, there are limitations and conditions. Gift planning professionals should be familiar with these unique requirements.
Before going further, we think it is helpful to recall a little bit of the history of the IRA. The retirement plan was authorized by Congress in 1974 through the Employee Retirement Income Security Act (ERISA). There were two primary goals for the creation of the IRA: 1) to provide a tax-advantaged way to save for retirement for employees of businesses who didn’t have pension plans; and 2) to provide a vehicle for individuals at the termination of their employment to preserve the tax-deferred status of their retirement funds. The retirement plans were instantly and enormously popular with contributions of $1.4 billion in the first year (1975). The total annual contributions to IRAs rose to nearly $5 billion by 1981. In 2025, it is estimated that Americans hold nearly $16 trillion in IRAs.
With so much wealth held in IRAs, it is only logical to wonder how portions of it can be transferred to charitable organizations. The biggest obstacle to that end is the age of the owner of the IRA (or other qualified retirement plan). There is often confusion about the age restrictions for withdrawing funds from an IRA, because there is an age at which the IRA owner CAN take withdrawals without penalties and an age at which they MUST take withdrawals to avoid penalties. The owner of an IRA is actually allowed to start withdrawing funds at the age of 59 ½ without incurring penalties, while IRA owners MUST start withdrawing funds at age 73. The age for mandatory withdrawals or required minimum distributions (RMDs) was age 70 ½, but it was pushed up to 73 in 2023. Eventually it is scheduled to be set at age 75. This means that most planned giving donors are allowed to take distributions from their IRAs, because most planned giving donors are above the threshold age of 59 ½.
The point we need to emphasize, however, is that these distributions (withdrawals) are fully taxable as income to the owner of the IRA. We need to remember that the money sitting in a traditional retirement plan represents pre-tax income – plus income and gains earned ON that pre-tax income. The owner has NEVER paid tax on the income that was earned during the person’s working years and, eventually, the federal government is going to levy tax on that income. States and even some local jurisdictions may also tax the distributions as ordinary income.
The most significant limitations to taking money from retirement plans to make charitable contributions are: 1) any owner of such a plan CAN take distributions beginning at 59 ½, and 2) the distributions will be taxed as ordinary income. Those two things are unavoidable. In fact, we published a popular article back in 2019 that discussed those considerations in light of using funds from retirement plans to establish life income gift arrangements: “Yes, Virginia, It’s True: There Can Be Life Income Gifts From IRAs (And Other Qualified Retirement Plans).”
Having outlined all of this, does that mean the well-intentioned donor can simply donate her entire IRA to the charity of her choice? Unfortunately, the answer is no. As explained above, IRAs are a specific legal entity, established under federal legislation passed in the 1970s. There have been a number of modifications to the rules for IRAs over the years, but, still, an IRA can only be owned by ONE person.
The IRA cannot be transferred in any way to any other person or entity during life. The only way to get money out of an IRA is 1) to take distributions during life that WILL be taxed, or 2) to designate a beneficiary to receive the IRA at death. The beneficiary at death may be a person or a charitable organization. If a charity receives the IRA upon the owner’s death, there is no income tax on that transfer. However, if a person receives a distribution of the entirety of the IRA upon the donor’s death, the distribution will be subject to tax as “Income in Respect of Decedent” or “IRD.” If the IRA continues for the beneficiary for a period of years, there is no immediate income tax on the money, but each distribution from the inherited IRA to the IRA beneficiary will be taxed as income.
Getting back to our original question, our favorite donor cannot “gift” her entire IRA to the charity because the IRA cannot be transferred to anyone or any entity during her lifetime. She can take distributions from the IRA, but every dollar she takes for herself will be subject to income tax. What if we pose a slightly different question: Can the donor transfer every dollar IN her IRA to a charitable organization – and escape tax on that distribution? Again, the answer is no. The now-familiar Qualified Charitable Distribution (QCD) provision allows the IRA owner to transfer each year up to a total of $108,000 in 2025 to one or more charities of her choice. The QCD will escape all income taxes on the transfer, but there will be no corresponding charitable contribution income tax deduction. A QCD up to $54,000 in 2025 can be used to establish a charitable gift annuity or a charitable remainder trust. Keep in mind that using a QCD to fund a CGA can only be done once in the donor’s lifetime.
Every dollar above the $108,000 in 2025 would be categorized as a taxable distribution, and the IRA owner would be taxed for income tax purposes at the federal and (if applicable) state and local levels. It may not even be possible for the IRA owner to arrange direct transfers from their IRA to charitable organizations above the $108,000 threshold. The IRA administrator knows that such money will be subject to income tax and may insist that any taxable distributions are sent only to the owner of the IRA.
In summary, the IRA is a wonderful vehicle utilized by millions of Americans to save for their retirement years. It defers the immediate income tax on the income, and the taxable distributions are made during the owner’s retirement years. There are certain limited ways that money in an IRA can be transferred directly to organizations as charitable gifts, but the IRA was never designed to be a vehicle for making charitable gifts. The donor cannot simply “gift” her entire IRA to the charity of her choice, but there are ways she can use those funds to make significant gifts to charitable organizations over time.