What Are RMDs and QCDs?

What Are RMDs?

Unlike taxable accounts, funds cannot stay in retirement accounts indefinitely. The requirement is to distribute a minimum percentage annually once you attain a certain age.

The reason for these “required distributions” is to make sure that Uncle Sam gets his due. When funds are contributed to retirement accounts, it is with pre-tax dollars with the assumption that the saver is in a higher income tax bracket when contributing versus when it comes time to distribute (if the expectation is that this will not be the case, there are other options to consider so speak with your financial advisor).

When Are RMDs Taken?

Hopefully, this information is neither new nor shocking to anyone. What may be new however, is that investors now have until age 72 before having to take distributions. It used to be that once reaching age 70 ½ (please do not ask where the ½ came from) you were required to start making withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan. The change to the distribution age came through the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was part of the Further Consolidated Appropriations Act signed into law on December 20, 2019. At present, if your 70th birthday is July 1, 2019, or later, you do not have to make distributions until attaining age 72, prior to that date you are subject to the old mandate.

Even though the age has changed, the annual deadline has not. For those who must make distributions, this must be done no later than December 31, with one exception: For those taking their very first RMD, they have until April 1 of the following year to make their withdrawal, however choosing to do so means that they will be subject to two distributions as they still must make the current year’s RMD by December 31. Again, the April 1 distribution is only allowed for the first RMD. Otherwise, if the deadline is missed, any non-distributed funds are subject to a 50% penalty.

Here is an example to clarify: Your RMD amount is $10,000, but by close of business on December 31 only $8,000 has been withdrawn. As of January 1, you will owe a penalty of $1,000 to the IRS (50% of $2,000) for the portion that went undistributed.

Finally, ALL non-spousal heirs of pre-and post-tax IRAs must withdraw all funds within 10 years, yet another change brought about by the SECURE Act. Heirs no longer have a lifetime RMD option so this should be kept in mind when creating an estate plan.

What Are QCDs?

Along with an understanding of what an RMD is and who must take it (those who have ROTH IRAs do not have mandatory distributions, but their non-spousal heirs will), it is also important to know what qualified charitable distributions (QCDs) are and where it fits into all of this.

A QCD is a distribution made from an IRA payable directly to a charity. The distribution counts toward the annual distribution requirement but is not taxed as income as the funds are being directed to a 501c3. The SECURE Act did not change the qualification age for QCDs – it is still 70 ½ – making it a great gifting tool that can be used to ease the tax burden prior to the onset of the mandatory distribution.


Please don’t feel overwhelmed by RMDs and/or QCDs. There are a lot of nuances and shifting details with recent legislation, but your advisor will always have the latest information available to give you guidance that best matches your needs and wishes.

Hilary Daniel, MBA, CFP®
Financial Advisor


Recent Posts:

How To Prioritize Travel and its Associated Expenses

Do you like to travel? Are you already looking forward to your next big trip? Do you spend more time planning your vacations than planning your finances? If so, you’re not alone. Recent surveys suggest that many Americans devote more time each year to planning their vacations than planning their finances.

Can You Afford That House?

An incredibly strong housing market over the last few years coupled with rising interest rates has put affordability out of reach for many home buyers.

Recent Quarterly Newsletters:

Thrive By Doing What You Love Edition

Read our Q4 2022 newsletter where we focus on how to thrive by doing what you love. We provide a “wheel of life” exercise to complete, outline a few end-of-year reminders, and announce our Parsec Prize winners.

Thrive By Ensuring Your Loved Ones Are OK Edition

Our Q3 2022 newsletter focuses on how to thrive by ensuring your loved ones are OK. In it, we have created an eight-page fillable guide you can create for loved ones to follow after you pass. We also provide other guidance on estate planning, caring for aging parents and preparing for a potential disability.

Recent Whitepapers:

Stay Up To Date With Parsec

Sign up to join our mailing list and receive quarterly newsletters, whitepapers, news, and more right in your inbox.
Scroll to Top

Not a Client But want to receive updates?

Please sign up to join our mailing list and receive our latest news, thought leadership content and invitations to upcoming webinars.