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How To Avoid Taxes On Required Minimum Distributions – Finger Financial Five #98

“It takes courage…to endure the sharp pains of self-discovery rather than choose to take the dull pain of unconsciousness that would last the rest of our lives.” – Marianne Williamson

Many retirees have done a great job saving in their retirement plans, but find themselves with higher taxes later in life due to Required Minimum Distributions. RMDs are forced taxable withdrawals from pre-tax retirement accounts.

Want to know how to satisfy your RMDs requirements without paying taxes?

Take advantage of Qualified Charitable Distributions (QCD). 

QCD’s are donations you make directly to charity from your IRA account. 

To qualify for QCD:

  • Must be taken from IRA, not 401ks.
  • You are limited to $100,000 per person. 
  • You must be over 70 ½ years old. 
  • Charity must qualify for QCD. 

Is a QCD better than donating cash or highly appreciated stock? Very likely. 

When you take your Required Minimum Distribution from your IRA account, you increase your Adjusted Gross income. This can decrease the medical expense deduction, increase cost of Medicare, increase tax on Social Security, and increase tax on capital gains.

If you donate to charity from your taxable account, you get a deduction, but there is a limit. You might not get much tax benefit unless you itemize your taxes. The standard deduction for a retired couple over age 65 is $28,700 for 2022. So, you need to donate a lot of money for itemized taxes to make sense. Less than 15% of households itemize their taxes and this figure is even lower for retirees. 

The odds are a Qualified Charitable Distribution is the better way to donate to charity. The money goes directly from your IRA to the charity without a taxable event. This means your Adjusted Gross Income is not increased. Some financial custodians can provide a checkbook for your IRA, which makes it easy to donate. Just write a check. Please use these checks for QCDs only. 

If you would like a tax map run for your particular situation, feel free to email me at [email protected] or click here to set up a call. 

Oh, you want your RMDs tax free and not give to charity? I want mint chocolate chip ice cream that’s calorie free.

We may be able to get anything we want, but we can’t get everything we want. 

In all seriousness, you could be doing everything right, but if you are between the ages of 58-72 years old, there are many tax planning options available to you. Reach out to us. We would be happy to double check for you.

Great quotes by Marianne Williamson

On the lighter side, Elliott was looking at my thinning hair on the back of my head. He asked, “Dad, how was your hair when you were my age?” I could tell he was a little concerned about his genetics. I replied with a grin, “Exactly like yours is son.” I could not stop laughing.  Elliott didn’t think it was quite as funny as I did. 

Hope all is well with you and your family,

Jeremy

Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information.  My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.

Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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