Tax-Advantageous Ways to Gift to Charities: Charitable RMD’s

Editor's Note:  This blog was updated to reflect the change in RMD rules in the SECURE 2.0 Act of 2022.  Read more here.

A 30-second read by the Baron Team:  If you are the owner of an IRA (Individual Retirement Account) you may be aware that at age 73 (or 75, depending on your birth year), you are required to withdraw a small portion of your account and pay taxes on the amount withdrawn.  This is called the “Required Minimum Distribution” or “RMD.”  The RMD is determined by the IRS (Internal Revenue Service) and applies to any retirement assets that have been “tax-deferred.”  At 73, the approximate amount you must withdraw from your IRA is about 4% of the account value.  As you age, this number goes up based on the RMD calculations from the IRS.

What if you do not need the money from your RMD?  A great option if you do not need the money from your RMD is to write a check directly to a qualified charitable organization.  Writing a check directly from your IRA to a charitable organization will qualify as a “Qualified Charitable Distribution” and satisfy your Required Minimum Distribution for that year.  The main advantage to doing this is to avoid having to pay taxes on your RMD withdrawal.  Any withdrawal from an IRA is normally taxed at your ordinary income rate, except for a “Qualified Charitable Distribution”.

Contact Baron Financial Group to discuss tax-saving gifting strategies.

Disclosure: This material is not intended to be relied upon as a forecast, research, tax or investment advice.  Please consult your financial planning and tax professional for personal advice.