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Leverage Your RMD For Charitable Contributions

By: Frank Armstrong

** As seen on Forbes**

Those of us above a certain age must begin to distribute from their regular IRAs. At age 70 ½ the IRS begins to lose patience with those funds that have escaped taxation for so many years. They want their share now, so they instituted an annual Minimum Required Distributions (MRD). Perhaps that’s fair enough. After all, you never paid tax on any of that money that has been growing in a tax deferred account for all those years.

But, it’s annoying if you don’t need all or part of that distribution for your living expenses. Perhaps you are still working, or have other funds. Receiving those distributions triggers extra income tax, and may drive up your Medicare insurance costs. Worse yet, if you then give all or part of the distribution to charity, you may find that you get no deduction because they have been phased out.

We can all agree that not needing the distribution isn’t the worst problem ever. But, paying taxes on funds that you might like to donate to a qualified charity may not fill your heart with joy.

There is another much preferable path. For several years now, donors subject to Minimum Required Distributions (MRDs) have been able to contribute directly from their IRAs. So, the charitable donation satisfies all or part of the MRD. Done properly, this excludes the donation from income. So, there is no reportable income, and no deduction. For high income taxpayers this is much better than reportable income and little or no deduction.

Unfortunately, until last year Congress renewed the legislation annually during the last few days of the year making it very difficult for taxpayers to plan their gifting. In an unusual burst of good sense, Congress finally made the qualified charitable deduction (QCD) permanent for 2016 and afterward.

There are a few very simple requirements: The check must not pass through your hands. It must be written by the custodian of your IRA directly to the charity. The charity must be a qualifying charity other than a donor advised fund or a grant making foundation. And, sorry, an inherited IRA or Simple Retirement Plan won’t qualify. Finally, you will need an acknowledgement from the charity for the gift.

So, if you are subject to MRDs where you don’t need all or part of the income for your living expenses and would like to make a charitable donation, you can leverage the tax code for yourself and your favorite cause.

Check with your tax professional to see how this might benefit you. The benefits may be substantial.