Q.: My dad makes charitable donations from his IRA and says it’s the best way to donate. I want to make a charitable donation from my 401(k) because selling an investment to raise cash to donate would trigger a gain. Unfortunately, they say I’d have to take a hardship distribution and then make the donation personally. Is this true for all 401(k)s? A.: It is true that a donation from a 401(k) cannot be done on a completely tax-free basis. Hardship distributions are available on many 401(k) plans but that would only be an option if you could document a true hardship. Even if you could take a hardship distribution, you would not replicate the tax break your dad enjoys.
If they are saying you’d need to take a hardship distribution, it suggests you are younger than 59½ because many plans these days allow those over 59½ to take “in-service” distributions. An in-service distribution would allow you to move funds out of your 401(k) to an IRA. If you could do an in-service distribution and were over 70½, you could move 401(k) funds to an IRA and donate from there. More on that in a moment. Assuming the hardship route is the o …