Have a $450,000 401(k) and Want to Donate Before Year-End? Make Sure You Do This Now

A 71-year-old sits on a $450,000 401(k), wants to send $20,000 to a favorite church or food bank before December 31, and assumes the retirement account is the smartest wallet to open. It usually is. Except for one detail almost nobody flags until it is too late: the tax code will not let you do it directly from a 401(k).

What follows is why it matters, what the numbers look like, and the sequence that has to start now, not in December.

Why the 401(k) Blocks the Best Move

The Qualified Charitable Distribution is the cleanest charitable tool available to anyone 70½ or older. Money moves straight from a retirement account to a qualified charity, and the distribution never appears in adjusted gross income. In 2026 the cap is $111,000 per individual, or $222,000 for a married couple if both spouses have their own IRAs. Schwab notes an additional $55,000 one-time QCD to fund a charitable gift annuity or remainder trust.

The catch is in the plumbing. QCDs are exclusive to IRAs. A 401(k), 403(b), or active SEP does not qualify. If the $450,000 is still sitting in an employer plan, a check written from that plan to a charity is a fully taxable distribution to the account holder first, then a donation, with the tax bill landing on the owner.

The Math That Makes This Painful

Take the standard deduction for 2026: $32,200 for a married couple filing jointly, plus $1,650 per spouse age 65 or older, plus the temporary $6,000 senior bonus deduction per qualifying spouse available through 2028 under the One Big Beautiful Bill. A retired couple in their seventies stacks close to $47,500 before writing a single check.

Now compare two paths for that $20,000 gift:

1. Withdraw from the 401(k), then donate cash. The full $20,000 hits taxable income. At a 22% federal marginal rate that is roughly $4,400 in federal tax. The charitable deduction is worthless because the couple is already taking the standard deduction. Worse, the extra AGI can push provisional income past the 85% Social Security threshold and trigger an IRMAA Medicare surcharge running $70 to $400 per month per spouse.
2. Roll the 401(k) to a traditional IRA first, then do a $20,000 QCD. The $20,000 never enters AGI. Social Security taxation and IRMAA are unchanged. If the account holder is 73 or older, the QCD counts toward the annual required minimum distribution dollar for dollar.

On a $20,000 gift the effective spread between the two paths is easily $4,000 to $7,000 once Social Security and Medicare effects are counted. Over a decade, the QCD path is a five-figure difference.

Why Year-End Timing Is Tight

A direct trustee-to-trustee rollover from a 401(k) to an IRA takes two to six weeks, longer if the plan requires paper forms or spousal consent. The QCD itself must be a direct payment from the IRA custodian to the charity, and it must post by December 31 to count for the tax year. With the 10-year Treasury near 5% and bond markets choppy heading into year-end, custodians get backed up in November and December. Start in August or September to leave a buffer before Thanksgiving.

For readers under 70½ who still want to give: bunching two or three years of gifts into a donor-advised fund in a single tax year, ideally with appreciated brokerage shares rather than cash, is the workaround. Capital gains are avoided and the itemized deduction clears the standard deduction hurdle in the bunching year.

Three Moves Before December 31

1. Confirm eligibility and pick the source account. Verify the account holder is at least 70½ by the distribution date. If the charitable dollars live in a 401(k), initiate a direct rollover to a traditional IRA at the same custodian this week.
2. Have the IRA custodian cut the check to the charity. The check must be payable to the charity. Ask for written confirmation the distribution is coded as a QCD on the 1099-R, since the IRS form itself does not carry a QCD box.
3. Coordinate with the RMD schedule. If age 73 or older, tell the custodian to apply the QCD amount against the year’s required minimum distribution before any other withdrawal is processed. Once a regular RMD leaves the IRA, that dollar cannot be recharacterized as a QCD after the fact.

The gift is the easy part. The account it comes from decides whether the IRS is a silent co-donor or an uninvited guest.

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