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Donate Your RMD, Save on Taxes

Taxes

June 1, 2017

Donate Your RMD, Save on Taxes

Learn how to reduce your taxable income with this strategy‍

If you’re looking for ways to reduce taxable income, donating your required minimum distribution (RMD) to charity may prove to be a beneficial tax strategy. If you are 70.5 and older, you may donate your RMD from your individual retirement account (IRA) to the charity of your choice. When you make this direct donation, it will satisfy your RMD for the year, but will not affect your adjusted gross income.

This type of distribution, known as a Qualified Charitable Distribution (QCD), reduces income instead of being an itemized deduction. The money must not be withdrawn from your account then donated, as only a direct transfer will count toward the QCD. You can choose to donate all or just a portion of your RMD.

So is there a limit on how much you can donate per year? You may qualify to donate up to $100,000. This donation can be made anytime in the calendar year for which your retirement account distribution is required, as long as you’ve reached 70.5. This QCD option can be utilized regardless of whether you plan to itemize your deductions on your taxes or not.

You can also take advantage of the QCD if you’ve inherited an IRA from a deceased owner, as long as you have reached 70.5. One thing to note, is that only gifts to 501(c)(3) organizations will qualify for this tax treatment. Donations to private foundations or doner-advised funds would not apply. A QCD cannot also count toward the charitable deduction on your taxes. Your financial advisor can review your situation to ensure you’re making the right decisions with your charitable contributions.

Lastly, if your Roth IRA account crossed your mind while reading this, a Roth account is not subject to RMDs until after you pass on and if you name a non-spouse beneficiary. Plus, income tax doesn’t need to be paid on distributions from your Roth IRA. The QCD strategy does not apply to employer-sponsored retirement plans such as 401ks and simplified employee pensions either.

Of course, it’s a challenge to have the right balance between giving and ensuring you save enough for yourself and your family. There must be confidence in that safety net and even money to pass on to children as an inheritance. To determine whether you can benefit from donating your RMD, or for questions about QCDs, contact Bayntree Wealth Advisors.

‍Would you like to discuss the possibility of donating your RMD to save on taxes? Schedule a 15-minute phone consultation with a Bayntree financial advisor.

Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.

‍Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.

Insurance product guarantees are subject to the financial strength and claims-paying ability of the issuing company, and may be subject to restrictions, limitations or early withdrawal fees. Annuities are not FDIC insured.

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