This is a column about individual retirement accounts, my dad and doing good.
For those of you with an individual retirement account who are over the age of 72, you know you are required to take an annual required minimum distribution, otherwise known as an RMD.
Since IRAs are funded with pre-tax dollars, the RMD rule ensures that people do not defer taxation in their lifetimes and leave untaxed income as an inheritance. The required minimum distribution from my parents’ IRAs was the subject of a running joke in my family.
The RMD deadline is Dec. 31 each year. Each fall as the leaves began to change, my father would begin his quest to determine his and my mother’s amount for that year.
One would think we were a family of CPAs or investment advisors, but we were not. My father was just an engineer who wanted to know how much money would be distributed and he would be taxed on.
For most of their married lives, my father handled the finances. He would calculate his RMD and then call the IRA plan administrator to double-check his math. Even after my parents hired a financial advisor, my dad was still trying to calculate their distribution amount.
As my father was near end of life—days before his death—he whispered to my mother, asking her how much their RMD was. We all found this remarkable, and a little bit funny. Bless my dad.
As I’m getting closer to receiving my own RMD, I’m learning that one of the best ways to make a gift to a charity is through a qualified charitable distribution from your IRA. Such a distribution is a direct transfer of funds from your IRA, paid directly to a qualified charity.
Amounts contributed in this manner can be counted toward satisfying your required minimum distribution for the year, and you pay no tax on those donated funds.
To use a qualified charitable distribution, you need to be 70½ or older, and the gift can be up to $100,000 without it being taxable. Begin by checking the organization’s eligibility to receive tax-deductible charitable contributions.
The donation must come directly from your IRA. You cannot take possession of the money and then donate it. And you must receive no goods or services for your donation.
As mentioned earlier, RMDs are considered income and are taxable. The benefits of rolling over all or part of your IRA’s required minimum distribution are many.
Sometimes RMDs can move an individual into a higher tax bracket. They could change the amount of Social Security benefits that are subject to taxes and possibly even expose you to a Medicare surtax.
Qualified charitable distributions help reduce one’s tax exposure and at the same time allow you to support your favorite cause.
Talk with your financial advisor if you have an IRA and are considering a charitable donation, or contact your IRA administrator to learn more.
And, Dad: Mom’s RMD is calculated and covered for this year, so rest easy.