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Charitable donations are given in many shapes and forms. Many people donate housewares, clothing, time and money to various charitable organizations. Charitable donations are a wonderful thing that help many people in need. In addition, there may be a tax benefit for you as well depending on your ability to itemize on your taxes. Today, we’re going to focus on the tax benefit of donating your Required Minimum Distribution (RMD) from your tax qualified retirement account (ex: IRA, 401k, 457, SEP).
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Our current tax code requires you to have more than the standard deduction in itemized expenses to be able to benefit from the charitable deduction. In addition, if you withdraw your RMD from your tax qualified retirement account and have it sent to you first, then you are also paying income tax on your withdrawal. So, you could be paying income tax and not receiving the charitable deduction on your taxes. There is a way around both these dilemmas!
- Have your tax qualified retirement account custodian send your RMD directly to the charity, so that it never comes to you directly! It’s called a Qualified Charitable Donation (QCD).
- This allows the charity to receive the donation as usual.
- It also keeps the RMD from being taxed as income to you
- There are some rules to be aware of around the QCD
- Give up to $100K from IRA per person
- Must go directly to the charity
- Counts as an RMD but not reported as income
- No deduction on income tax
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Even though there may be no deduction, in many cases it works out better for the retiree to not have the taxable income. It’s knowing information like this that can be of benefit to you and your retirement. Contact us today to book an appointment with one of our Lockheed Martin Retirement Specialists to make sure your taking advantage of the little things!
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Be sure and check back next week for more incredibly valuable information. Cheers!
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