Reduce Your Taxes, Help the Trust, and Feel Good All Year Long

Or, Achieving Serenity at Seventy:

At this time of the year, many of us are preparing to file our taxes. And, for seniors, we are often looking at a “required minimum distribution,” or RMD, from our IRA’s. This can create a significant problem in that these withdrawals can bump you into a higher tax bracket, resulting in increased tax payments.

The Trust would like you to know you may be able to reduce your overall taxes by making a charitable contribution using these required mandatory distributions. This could be a ‘win-win’ situation for you and the Trust.

In the past, the mandatory age to begin withdrawals from your IRA was 70 ½. Importantly, the Secure Act of 2019, increased the age at which IRA owners must begin required minimum distributions to 72. However – and this is interesting – the age for qualified charitable distributions (QCD) remains age 70½. This creates a unique one to two-year window in which your IRA distribution can qualify as a charitable contribution, but not as a required minimum distribution.

The biggest advantage of a charitable contribution is the ability to lower your adjusted gross income (AGI). It’s widely understood that this is much more valuable than taking an itemized deduction, which only lowers your taxable income. And, because the adjusted gross income is used for many tax calculations, having a lower number can allow a donor to stay in a lower tax bracket, reduce or eliminate taxation on Social Security or other income. Having a lower AGI can help you remain eligible for deductions and credits that might be lost if you had to declare the RMD amount as income.
With all this said, keep in mind: any required minimum distribution must be made directly to the charity, not to the owner of the distribution or a beneficiary. This means you need to have the distribution made directly to the charity, or it will be counted as a taxable contribution. You can receive this check and deliver it to the charity, but you can’t deposit the check and make out another one to the charity.

As an IRA owner, you can take out a sum larger than your RMD and give it to a charity. The Qualified Charitable Distribution is excludable from income up to a maximum of $100,000. In order to deduct an amount over $100,000, you must qualify for itemized deductions to deduct excess contributions.
The charity you choose must be a qualified 501(c)3 organization – like the Three Village Community Trust!

The Big Take Away: IRA owners who wish to lower their AGI can use the qualified charitable distribution strategy to efficiently disperse money to a charity, like the Trust. This strategy is superior to taking receipt of the distribution and then donating to charity because this option will not reduce your AGI. If used properly, the QCD rule will provide you – a charitably minded, generous, and giving IRA owner with a convenient tax deduction for many, many years – helping you achieve serenity at Seventy, and beyond.

Remember to consult with your tax professional or financial advisor for more information.

Source: Investopedia – How to Reduce Your Taxes and AGI by Giving to Charity.