A Nifty Alternative to Accepting Required Minimum Distributions from your IRA

If you’re looking to set up a charitable trust, it’s a good idea to consult with a trust attorney in Santa Rosa for expert guidance. Johnston & Associates ensure you bring pertinent documents related to your discussed matter which involves court orders, prenuptial agreements, judgments, and relevant contracts. Don’t forget to complete and bring any questionnaire provided by the attorney.

If you are age 73 or older, you are receiving—or will start receiving soon—minimum required distributions from your IRA or 401(k). Here’s a nifty way to benefit your favorite charity while saving money. What’s not to like about that?

First, what are minimum required distributions (RMDs)? When you have a qualified retirement account, such as an IRA, 401(k), 403(b), etc., you must begin receiving a portion of your retirement account every year upon reaching age 72. That’s called a required minimum distribution, and of course, you pay income tax on the distribution.

But if you are passionate about the work one or multiple nonprofits are doing, you can donate your RMD every year to your favorite charity or charities. It’s called a qualified charitable deduction and it’s the best of both worlds: Not only do you not pay income tax on the RMD, but it also doesn’t increase your adjusted gross income.

Here are some other benefits:

  • It can help you qualify for other tax breaks. For example, having a lower AGI can reduce the threshold for deducting medical expenses, which are only deductible to the extent they exceed 7.5% of AGI.
  • You can avoid rules that can cause some or all of your Social Security benefits to be taxed and some or all of your investment income to be hit with the 3.8% net investment income tax.
  • It can help you avoid a high-income surcharge for Medicare Part B and Part D premiums, which kick in if AGI is over certain levels.
  • The distributions going to the charity won’t be subject to federal estate tax and generally won’t be subject to state estate taxes (for those states that have them).

You must arrange with the custodian for your retirement account to pay the distribution directly to the charity. It cannot pass through your hands or this plan will fail.

That’s a small price to pay for such a wonderful plan. Both you and your chosen charity will radiate with joy!

Explore the smart strategy of donating your RMD to support your favorite charity while saving on taxes. Contact Johnston & Associates for personalized guidance on maximizing your impact and minimizing tax implications. To make a consultation with one of our attorneys, call 707-545-6542.