How to donate your RMD using Qualified Charitable Distributions

You have moved your Qualified account out of risk in the market into a “Safe Money” account with Summerlin Benefits Consulting, but now you need to take your Required Minimum Distribution (RMD) and you don’t really need those funds. Is there a way to give a portion or all your RMD to a charity? For Individuals who are of the age group and have these distribution requirements, the answer is yes! Many retirees don’t realize that they can donate a portion, or even all of their RMD directly to a charity of their choosing. This is referred to as a qualified charitable donation (QCD).

Qualified charitable distributions can reduce your taxable income

RMD’s can increase taxes that you may need to pay. By doing a QCD, you would be sending a check directly from your IRA to the charity, which can allow you to exclude the amount from taxable income. Here are some examples of how your RMD can increases your tax obligations:

· Your RMD can put you in a higher tax bracket. Your distributions are normally considered taxable income, which can move a retiree into a higher tax bracket.

· Medicare surtax. RMDs increase your modified adjusted gross income, or MAGI. This could consequently trigger the standard 3.8% Medicare surtax. The surtax would apply to the lesser of either net investment income or MAGI more than $200,000 for individuals or $250,000 for married couples filing jointly.

· Social Security tax. Withdrawals from a retirement account could cause Social Security benefits to become taxable. This happens to 85% of single filing individuals with an annual income above $34,000 or joint filing married couples with an annual income above $44,000.

· Medicare Part B & D premiums. These premiums are calculated by using the MAGI from the last two years. If you take a large RMD, this could increase your Medicare costs.

You should consult your tax advisor to see if any of these could be applicable if you take your full RMD amount. A qualified charitable distribution could be the solution you need. Keep in mind that a QCD does not provide a charitable donation for taxpayers, this is just to assist with your taxable income amount. If your tax advisor thinks this is a good idea for you, get with your Summerlin Benefits Consulting team to help you execute a QCD from your qualified policy.

What are the rules and regulations for a qualified charitable distribution?

To be able to do a QCD you need to be have a qualified IRA such as a traditional, rollover, inherited, inactive SEP, or a SIMPLE and be already of age for RMD’s. This means individuals who turned age 70 ½ as of 2019 and have been taking RMD’s since then, or who turned 72 in 2020 and began RMD’s then, or most currently, those who are turning 73 in 2023). Your qualified charitable donations must go directly from the qualified retirement account to the charity of your choice, you can’t move your RMD into your own bank account and then redistribute to the charity. The annual limit for QCDs is $100,000.

If you are already taking distributions or making contributions, it would be beneficial to consult with your Summerlin Benefits Consulting advisor on how to complete the QCD request. The distributions would satisfy your RMD since the IRS counts any withdrawals taken throughout the year. If you’re still working and make IRA contributions, these can also reduce your deduction for QCDs if both are made in the same year.

Major tax benefits when using qualified charitable distribution

QCDs can offer some big tax savings if it’s the right option for you. If you consulted with your tax advisor and they helped you figure out that you don’t benefit from itemizing your tax deductions and they think a QCD would be beneficial then Summerlin Benefits Consulting can help you complete the request. Our team is knowledgeable about all the forms and procedures to assist you with completing your QCD.

Don’t have account with us? Then this is a great opportunity to give our office a call to meet with one of our Safe Money experts. They can assist you with moving your at risk funds into a safer vehicle and will touch base with you every year to help satisfy your RMDs. Call our office today to make your retirement nest egg safe from market declines.