“For decades, you’ve saved in tax-deferred retirement accounts, watching your balance compound untaxed. Then you turn 73, and the IRS comes calling, Jeff Judge, CFP® advises in a Kiplinger article about RMD “tax traps” to avoid.
While at Geyer Legal, our attorneys offer no direct tax advice, instead working in cooperation with our clients’ tax advisors to coordinate estate planning strategy with tax planning, one thing that is true is that tax law and estate planning overlap, and that is definitely true when it comes to IRA accounts and Mandatory Minimum Distributions.
What many retirees don’t realize until it’s too late, Judge points out, is that Required Minimum Distributions don’t just create a tax bill; they trigger “a cascade of consequences, including:
- raising Medicare premiums (a large RMD in one year can raise your Medicare premium two years later, because Medicare Parts B and D premiums are income-based)!
- increasing the taxes you pay on Social Security benefits (up to 85% of your Social Security benefits can become taxable depending on your combined income, which includes adjusted gross income, tax-exempt interest, and half your benefits).
- while RMDs don’t count as “net investment income”, if they push you over the NIT threshold ($200 for single taxpayers, $250,000 for joint taxpayers), you could face an extra 3.8% tax.
While, if you take the standard deduction, your charitable contributions provide zero tax benefit, Judge points out, a qualified charitable distribution (QCD) can lower taxable income. In fact, this is a topic we often discuss with our Indiana estate planning clients:
- 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, the funds go directly to charity and never become part of the participant’s gross income.
While it is still true that we offer no direct tax advice or calculations, taxes, we’ve learned, continue to represent a central topic in estate planning discussions.
In fact, proper planning protects wealth so that more of it can go to the people and the causes our Geyer Legal clients care most about.
– by Cara Chittenden, Attorney at Geyer Legal Group
While it is still true that we offer no direct tax advice or calculations, taxes, we’ve learned, continue to represent a central topic in estate planning discussions.
In fact, proper planning protects wealth so that more of it can go to the people and the causes our Geyer Legal clients care most about.
– by Cara Chittenden, Attorney at Geyer Legal Group
