Ask the Expert: Learn More About RMD Tax Reduction
How can I reduce taxes on the required minimum distribution I must withdraw from my IRA each year? My RMD is more than I need to live. I would take a smaller distro if I could.
Donate to charity from your Individual Retirement Account. A qualified charitable distribution counts towards your RMD, but is not taxable.
Let’s say your RMD is $10,000. If your IRA gives $4,000 in QCD, you only need to withdraw an additional $6,000 to fulfill your $10,000 RMD obligation. You’ll pay taxes on $6,000 – and the QCD will reduce your adjusted gross income (the number that determines whether you’ll pay extra Medicare premium) by $4,000.
Taxpayers can take QCDs, whether they itemize or take a standard deduction. But QCDs are particularly good if you get a standard deduction, because without them you get no tax benefit for charitable donations.
1) You must be at least 70.5 years old when taking a QCD; 2) the QDC check must be drawn on your IRA and payable to the charity (it cannot be a check in your name that you endorse for the benefit of the charity); 3) it must go to an eligible public charity (QCDs cannot go to private foundations or donor-advised funds); 4) you cannot receive any goods or services in exchange for your donation.
A QCD can exceed your RMD. The maximum QCD is $100,000 per year per taxpayer. A married couple could claim total QCDs of $200,000, assuming each person is eligible and neither donates more than $100,000 from their IRA.
Next week, I’ll explain the rules for transferring QCDs from your IRA to recipients and how to account for them on your tax return.
The bottom line
A qualified charitable distribution counts towards your RMD but is not taxable.