Whether you’re fully or partly retired, you may find that your assets are sufficient to cover your lifestyle for the remainder of your retirement. In that case, you may not feel like you need to use any additional money from your IRA. And that’s fine – until you reach age 72 (age 70.5 before January 1, 2020).
Then, the IRS requires will require you to withdraw funds from your IRA in statutorily mandated annual increments known as “Required Minimum Distributions” (RMDs). The way IRAs are structured, you receive a tax deduction for making contributions on the condition that withdrawals from the account are taxed as ordinary income.
That means two things: a) you must take RMDs whether you want to or not (there’s a huge penalty if you don’t) and b) the RMD money could push your adjusted income into a higher tax bracket, depending on your taxable income.
If making regular charitable contributions is important to you, a qualified charitable distribution (QCD) may be a suitable tax-relief strategy. Starting at age 70.5, you can direct IRA distributions of up to $100,000 per year to a qualified 501(c)3 charity of your choice.
This charitable distribution satisfies the IRS RMD rules. AND, because the money went to a charity, you’re not required to report the income or pay taxes on the distribution. The QCD rule permits you to deduct the donation, which lowers your adjustable gross income (AGI).
Since the IRS uses AGI in several calculations -- including the taxable portion of your Social Security benefits and what deductions and credits you qualify to receive -- you can minimize the impact on your other retirement benefits. Particularly if you regularly support charities, you may find the QCD rule is truly a win-win.
Please consider this a friendly reminder that the clock is ticking on the processing of RMDs for the 2022 tax year - - RMDs must be completed before December 31st. The IRS maintains fairly stiff penalties if you don’t! You can learn more about RMDs by visiting www.irs.gov and searching “RMD” to find information and worksheets to help you.
If you have any RMD related questions about your, or a family member’s accounts which are managed with the assistance of our practice, please contact us. We are happy to help you. Call 302-235-8672. Please note that our office will have limited staffing between 12/24 and 1/1. We kindly request that you reach out to us with any RMD assistance by 12/16/22.
Before you make any decisions, be sure to consult with your tax professional for guidance specific to your household. Then, we can review your portfolio to determine if your current assets can support these contributions without impacting your overall financial plan. If you’d like further information or have questions, give our office a call.
Wishing you and your families the happiest of holiday seasons,
-v