How to Avoid Tax on Your IRA Distributions

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Published by Todd Melerine CPA, CFP®

Are you taking Required Minimum Distribution and are charitably inclined? The IRS requires you to begin taking taxable distributions (referred to as Required Minimum Distributions or RMD’s) from your IRA when you reach age 70 ½. So, what does RMD’s have to do with being charitably inclined?

If you are making charitable donations you should consider using your RMD for the donation. Tax law allows you to make a “Qualified Charitable Donation” (QCD) of your RMD. A QCD is an otherwise taxable distribution from an IRA that is paid directly from the IRA to the qualified charity. Doing so allows the distribution to count as your RMD for the year but it is not included in our income.

If you deduct your itemized deductions on your tax return you may already be getting a tax benefit for charitable donations. However, the Tax Cuts and Jobs Act of 2017 raised the standard deduction from $12,700 to $24,000 for married couples. This means a lot of people who previously used itemized deductions will use the standard deduction instead. When they do there will be no tax benefit for making charitable donations. However, you can still get a tax benefit if you use your RMD to to fund a Qualified Charitable Distribution.

Because a QCD directly reduces your income, it may provide additional benefits. For example, the taxation of social security is determined by your income. Also, Medicare premiums can be affected. We make donations to benefit the charities and those in need, but it is nice to get tax savings too.

If you have not yet taken your RMD for the year and you are charitably inclined, you should consider utilizing the Qualified Charitable Donation opportunity available. Be sure to tell your CPA or tax preparer that you made the QCD to ensure it is reported correctly and you receive the benefit.

Talk with your CPA or give us a call if we can help.


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