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Tax Savvy Tip for Those over 70 ½ Years Old

| June 13, 2019
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One you reach age 70 ½, you must begin taking Required Minimum Distributions (RMD) from your qualified retirement account or other tax-deferred retirement savings plans. Did you know that you can use your RMD (or a portion of it) to make a charitable contribution and avoid taxation of those funds? This applies even if you’re claiming the standard deduction.

If you are a traditional IRA owner aged 70½ or older, you can gift up to $100,000 a year to a qualified charity in this way. The donation must be a direct transfer of assets - it cannot pass through your hands.

How exactly does this work?
You can exclude the amount of the gift from your adjusted gross income for the year in which you make the donation. Depending on your situation, this may also help you avoid taxation of your Social Security benefits or the Medicare surtax. Since a Qualified Charitable Distribution (QCD) is not a deduction, even taxpayers who don’t itemize can benefit from one.

Does the income from your annual IRA Required Minimum Distribution risk putting you into a higher tax bracket?
You get to lower your adjusted gross income by up to $100,000 a year while also helping a charity. By the way, that $100,000 annual QCD limit is an individual limit. A married couple can donate up to $200,000 in a year via QCDs while meeting some or all of their Required Minimum Distribution requirements.

When should you plan to make the Qualified Charitable Distribution?
If you manually request your RMD each year, identify how you want to take advantage of the QCD before processing the RMD, because once you take out your distribution, you can’t give it back. If you are set up to receive your RMD automatically, you may want to turn off or adjust the payment amount so that you have the ability to take all or part of your distribution to give directly to a charity.

We are happy to answer any questions you may have about this process and help you make a plan for this strategy if it appeals to you.

One final important note: keep in mind that it is your responsibility to inform your tax preparer that you made the charitable distribution because the IRA custodian is not required to identify the QCD on your annual 1099R Form.

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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

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