The IRS Lets You Send Your RMD Straight to Charity and Skip the Tax Entirely. These 3 ETFs Replace the Income You Gave Away

You turned 73, and the IRS started demanding required minimum distributions from your IRA. Your accountant mentioned a move that sounds almost too good: send the RMD straight from your custodian to a qualified charity, and the money never touches your tax return. That is a Qualified Charitable Distribution, and it is one of the best tax breaks left for retirees. The catch is obvious once you do it. The income you were counting on is gone. That is where Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), iShares Preferred and Income Securities ETF (NASDAQ:PFF), and iShares Treasury Floating Rate Bond ETF (NYSEARCA:TFLO) come in. Together they rebuild the cash flow you just gave away, with three different engines doing three different jobs.

How a QCD Actually Works

The mechanism is simple once you strip out the jargon. Simply put, your IRA custodian sends the RMD money directly to a charity instead of to you. This still counts toward your RMD for the year, but it never lands in your adjusted gross income. That is the whole point. If you took the distribution yourself and wrote a check to the same charity, the RMD would still show up as taxable income and only help you if you itemize. A QCD bypasses AGI entirely, which matters even more if you are sitting near a Medicare IRMAA surcharge threshold or the edge of a tax bracket.

Now the harder part. You just redirected the income you were living on. The three ETFs discussed here, held in a taxable brokerage account or the remainder of your IRA, put that income stream back. QCDs are only one lever here, and if charitable giving is already part of your plan, we walked through donor-advised funds, appreciated-stock gifts, and the rest of the tax-smart routes in a free guide.

VIG: The Dividend-Growth Anchor

VIG tracks the S&P U.S. Dividend Growers Index, which screens for large U.S. companies with long records of raising their payouts. The expense ratio is 0.04%, meaning you pay very little in fees. Distributions arrive quarterly, and the fund paid $3.5813 per share over the trailing 12 months, with an annualized forward distribution of $3.9952. The yield is modest by design. What you are buying is dividend growth, and the payout history stretches back to 2006. The total-return case is real too: VIG returned 16.15% over the past year and 241.16% over the last decade on an adjusted basis. Use VIG as the growth engine that keeps your income rising with inflation instead of shrinking against it.

PFF: High Current Income, Paid Monthly

PFF holds U.S. preferred stocks and hybrid income securities, mostly issued by banks and other financials. The expense ratio is 0.45%, higher than a plain index fund because the preferred market is less liquid. In exchange, you get a much fatter payout and a monthly distribution schedule, which lines up nicely with retiree cash needs. The trailing 12 months delivered $1.64325 per share, with an annualized forward distribution of $1.766904 on a share price of $30.36. Price action is quiet by equity standards, with PFF up 1.62% over the past year. This is the piece that replaces the raw dollar amount of your RMD income fastest.

TFLO: Treasury-Backed Ballast

TFLO holds U.S. Treasury floating-rate notes whose coupons reset with short-term Treasury rates. That structure gives you two things at once: government credit quality and almost no duration risk. The fund manages roughly $6.7 billion in net assets, and its portfolio is almost entirely direct Treasury holdings with a small cash sleeve. Distributions are monthly, and the trailing 12 months paid out $1.89408 per share against a price of $50.52. With the federal funds upper bound at 3.75% and the 10-year Treasury yielding 4.77%, short-rate income is still generous. TFLO is where you park the money you cannot afford to see drop.

Trade-Offs to Weigh

None of this is free. VIG’s yield is thin, so if you need the income right now, you will lean harder on the other two. PFF’s payout varies month to month, and its concentration in financial-sector preferreds means a bank stress episode will hit the price. Recent monthly payments have ranged from $0.031167 to $0.177226, so budget on the low end. TFLO’s yield floats down as fast as it floats up; if the Fed cuts, your monthly check shrinks. Blend all three in proportions that match how much of your former RMD income you actually spent, and you will have rebuilt the paycheck without rebuilding the tax bill.

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