When the Required Distribution from your IRA Isn’t Needed
Not everyone needs the required minimum distribution (RMD) from their retirement account to enjoy their lifestyle. If you don’t want your distribution, one option to consider is donating your IRA distribution, which also gives you a tax deduction.
Required Minimum Distribution
Even if you don’t need the money, you are required to begin taking distributions from your tax-deferred IRA when you reach age 72, or at age 70 ½ if you turned 70 ½ in 2019 or before. The distributions are added to your income and taxed at your highest marginal rate, perhaps even at a higher rate than your other income if you’re right at the threshold between two rates. If you are still working, you are more likely to have to pay a higher rate on this income.
If you don’t need the distribution or don’t want it included in your income, you may consider donating the distribution directly to charity through a qualified charitable donation. By donating your required minimum distribution, the distribution won’t be included in your gross income, which means lower taxes overall.
Qualified Charitable Donations
A qualified charitable donation may be a good way to get a tax deduction. After the 2017 tax law doubled the standard deduction, many people no longer itemize deductions on their tax returns. If your charitable contributions, along with any other itemized deductions, are less than $12,950 a year (in 2022), you may not get a deduction for your contributions to charity. However, substituting a qualified charitable donation for your RMD is a way to make a donation and receive a tax benefit from it.
The maximum amount you can donate is $100,000. If you donate less than your required minimum distribution, you will need to take the remainder as a distribution.
Donate Directly from the IRA
In order for the donation to count as a required minimum distribution, the donation must be made directly from the IRA to the charity. Funds distributed directly to you will not count as a qualified charitable IRA donation. The charity you select must be approved by the IRS. Check with your IRA for specific rules they may have about how to make the distributions. If you make a qualified charitable donation, you cannot also itemize the deduction.
Baker Law Group offers Estate Planning services including asset protection strategies and charitable trusts. We offer a complimentary initial consultation to determine how we can best assist you. To schedule a consultation:
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