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An Alternative to Taking Your Required Minimum Distributions

Wed, Dec 5, 2018 - 12:35pm

Do you still need to take your required minimum distributions (RMDs) for this year but don’t need the income? Are you charitably inclined? You can combine the two and reduce your taxable income, all at the same time.

With the recent tax law changes, we don’t have as many options to make itemized deductions count like they used to, not with the higher standard deductions allowed.

For example, if you are married and over 70½, you will have a $26,600 standard deduction and would need total itemized deductions to be over that amount in order for it to make sense to itemize.

With the caps on property taxes and mortgage interest it makes it more difficult for most people to itemize. Many of us like the tax deductibility of charitable donations, but it may no longer makes sense to itemize. An alternative is to make your donation directly from your IRA. By doing it this way, you still have a tax advantage, still have an opportunity to donate and everybody is happy!

Of course, there are rules that need to be followed to make this work.

First, you need to be at least age 70½.

Second, the funds must be sent directly from your account to a qualified charity. In other words, it should not pass through your hands. If you have a check-writing privilege associated with your IRA, you cannot write a check. If you have already taken some of your RMD and want to count that as a donation, you can’t as it has passed through your hands so it is disqualified—no retroactive application.

You don’t have to send your entire RMD to charity, you can send some to charity and take the rest for your needs.

You are limited up to $100,000 of donations from your IRA per year. That means you can donate more than your RMD amount if you are feeling generous.

These rules also apply to inherited IRAs.

Another advantage to Qualified Charitable Distributions (QCDs) is that the amount distributed is removed from your adjusted gross income. Why is this important you ask? It is because your adjusted gross income determines the amount of premiums you pay for Medicare as well as taxation of Social Security.

If you decide to take advantage of this option, record keeping is essential. You will need to get documentation from the charity that they received your funds. You will also need to share all of this with your tax advisor.

If you would like to learn more about this, please feel free to contact us at (888) 486-3939.

About the Author

Becki Sutton