Tax Free Required Minimum Distributions?

By Chris and Laurie Kemp, CSAs

Tax Free Required Minimum Distributions Elder Care Twin Cities MNFor those of you that have a retirement account and are 70 ½ or more, you need to take a Required Minimum Distribution (RMD) each year. Most of that income will be taxable to you.

Ask your tax advisor if you can avoid income taxes by making a Qualified Charitable Distribution (QCD). You might be able to avoid some or all of that income tax if you meet these conditions.

  1. I am 70 ½ or older and have to take a Required Minimum Distribution (RMD)
  2. I have an IRA or other type of qualifying retirement account
  3. I give to charities each year

Usually much of your RMD is taxable income to you. But if you meet the above conditions you should ask your tax expert if you could take advantage of a QCD. They will tell you if you have the right type of IRA and if the charities you want to give to will qualify.  If they do, your tax expert can tell you how to make the donation in the correct way to avoid the income tax on your RMD.

The IRS gives an example of a QCD on their website here. If you normally make contributions to charities, this is a way to do it with pre-tax dollars. So you not only get to make a donation you would have made anyway, but you avoid the income tax you would pay on your RMD. This is a strategy you should discuss with a tax expert, to see if it is right for you.

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