A Tax Strategy to Consider: RMD & QCD
In school we were told to know our ABC’s, but if you are over the age of 70 ½ and have an IRA or 401(k), you should really know your RMD’s. Required minimum distribution (RMD’s) is the amount that a person is required to withdraw from their tax-deferred retirement accounts every year. These mandatory distributions count toward your income and are taxed accordingly. If you do not take these distributions, you are subject to face a 50% penalty on the amount you were supposed to withdraw.
If you are a charitable person, there is a way to lessen that tax burden. There’s a tax break called qualified charitable distributions (QCD’s) that allow you to take your charitable deductions right out of your tax-deferred retirement accounts. The amount transferred DIRECTLY from your account to a qualified charity will be excluded from taxable income. In other words, the QCD will count as your RMD without being added to your adjusted gross income.
So, if you are a retiree who is a big giver, consider “killing two birds with one stone” by meeting your RMD requirement through a DIRECT transfer to a QCD and lessening your tax burden for 2019.