RMDs and Charitable Contributions
RMDs are back for 2021. An RMD is your Required Minimal Distribution you must take out of your IRA if you are one of those folks who have reached the age of 72. You are required by the government to begin taking the Required Minimal Distribution from your IRAs or you will pay a 50% tax penalty. The same rules apply to 401k plans and other workplace defined contributions plans with two exceptions. If you are still working you can delay these payments until you retire provided you don’t own more than 5% of the company, you work for. Secondly, if you have more than one IRA, you must take it from each account.
You can decrease your tax liability by making a Qualified Charitable Contribution (QCD). If you are already contributing to or would like to contribute to a Qualified Charitable Organization, you can have the funds from your IRA sent directly to these organizations and you will not pay taxes on the moneys given. You give just your RMD, or you can increase up to an amount of $100,000 yearly to your favorite charity. You and your spouse if you are married can give as much as $100,000 each. These IRA funds will not be taxable and will not be added to your AGI. You won’t be able to deduct them on your Schedule A, but most folks these days are taking a Standard Deduction, and this is a helpful tax strategy using the charitable gifts you are already giving. Some plans send the money directly and other plans, give you a check book to write as you go. Just remember the money must go directly to the Charity from your retirement plan.
Remember when you send your information into us, it is clear that we know what is given through the QCD and what may be given outside the QCD. Unless there is a change, you will be able to take another $600 above the line deduction on your return for 2021 for other deductions you may make if you do not itemize.
If you have questions talk to your financial advisor or let us know. If you are receiving RMD monies and you have not let us know, just remember this is taxable income. If you choose not to do an RMD, let us make sure we have evaluated how this will affect your tax situation for 2021. We still have time to adjust withholdings or make estimated payments to address this.