Lowering taxes on Required Minimum Distributions

Lowering taxes on Required Minimum Distributions

IRA owners who are 70½ or older are able to give part of their Required Minimum Distributions directly to a charity and avoid paying taxes on the amount. The ability to give directly to a charity from your IRA is a huge tax advantage for taxpayers who do not itemize.

Under the new tax law, the number of taxpayers who can itemize will shrink dramatically, and if you don’t itemize, you get no tax benefit from your donations. However, if the charitable contribution comes out of your IRA you not only lower your adjusted gross income, but also your modified adjusted income (MAGI.) This can help to lower or eliminate the taxation of Social Security benefits. Lower Medicare premiums are also possible for those with higher income.

There are some rules to be aware of. First, these qualified charitable distributions must be made from IRAs; required distributions from SEPs, SIMPLES or inherited IRAs do not count. Second, you must be over 70 ½, and the distribution must be part of your Required Minimum Distribution. Your IRA custodian must make out the check directly to the charity, not to you, although it can be sent to you, and you can forward it on to the selected non-profit. The charity also needs to acknowledge the gift for your records. There is a limit of $100,000.

Your custodian will report the entire amount of your required distribution on their 1099 form, so be sure and let your CPA of tax preparer know how much was directed to charity.

For those who will benefit by using the IRA to charity, begin your planning early. Take stock of all monthly donations and periodic pledges you have made for 2018, and consolidate them so they can be taken care of with one check to each organization. It’s your choice whether you want to make these gifts at the beginning or end of the year. Your custodian will require you to sign a distribution form listing the recipients you want check to be made out to. If you normally have taxes withheld from your distributions you should probably not have taxes withheld from these; you can sign a form reinstating tax withholding immediately after your qualified charitable distributions are completed.


Steven Weber Eugene Balerna CIMA ® Danielle Sto. Domingo
Registered Investment Advisor Dir., Investment Research Client Services, Operations

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