Required Minimum Distribution (RMD): Taxable or Not Taxable
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If you have reached the magical age of 70 1/2, congratulations! You are now required to take a Required Minimum Distribution (RMD) from your Individual Retirement Account (IRA).
What? You are not happy the government is requiring you to start taking money out of your retirement plan? This means you will have to include this distribution in your taxable income and pay more taxes. You do not want to pay additional taxes.
If you were thinking of making a contribution to one or more of your favorite charities, there is a way to not have pay additional taxes. Tell your broker or banker that is handling your IRA to give your RMD amount or more – up to $100,000.00 – to your favorite charity or charities. The broker will need to make the payment directly to the charity.
Why is this better than just giving the money directly to the charity? If the money is sent from you, the donation will need to be reported on your tax return as income. If you have your broker withdraw the amount from your IRA account and give it to the charity, it will not be included as income on your tax return.
If you decide to give the money directly to the charity and include the amount as income, you will be able to take an itemized deduction. But if you no longer get a benefit from itemized deductions, then giving your RMD directly to a charity is a great solution. It benefits all parties.
Do the numbers game and do what works the best for you.
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