“What many retirees don’t know,” Kristin McKenna points out in Forbes, is that you can give money to charity using your IRA. Here’s how the mechanics work:
When must you take your RMD?
If you reached age 72 any time in 2021, you must take your first Required Minimum Distribution out of your:
- Traditional IRA (including SEP and SIMPLE)
- profit sharing
- profit sharing plan
by April 1 of this year. (Beginning this year, though, you’ll be required to take the RMD by the end of each year rather than being able to carry over until April 1 of the following year).RMD distributions are fully taxable.
How do you know how much you’re required to take out?
Calculating the RMD begins with the balance of each retirement account at the end of the previous year, divided by the number on the IRS’s Uniform Lifetime table.
Qualified Charitable Distributions
Rather than taking the distribution from a traditional IRA, the IRA participant may direct the IRA custodian to send the money directly to an eligible charitable organization. If this election is made,, there will be no tax due on the distribution as the funds go directly to charity and never become part of the participant’s gross income. Not only can worthy causes be benefited in this manner, from the individual’s standpoint, several good things potentially result:
A QCD keeps taxable income lower (In some cases, this can reduce tax on Social Security and Medicare)
Charitable contributions through QCDs don’t require that you itemize deductions, so you can take advantage of the standard deduction.
At Geyer Law we work together with our clients’ tax advisors when it comes to tax planning. The process of choosing which nonprofit organizations to support is one vital component of estate planning. Particularly in these post pandemic times, many charitable organizations truly need an extra measure of help. Meanwhile, our clients stand to save both time and money by “converting” their RMDs to QCDs.
– by Ronnie of the Rebecca W. Geyer & Associates blog team