The IRS requires you to take distributions from your pre-tax retirement accounts. This forces you to pay taxes on money you may not need. But you can avoid paying income tax on any money you send directly from your pre-tax accounts to charities. The money sent directly to charities counts towards satisfying your Required Minimum Distribution for the year. Everyone wins! You get to make an impact, pay less taxes, and satisfy your IRS requirement.
The age for withdrawing from retirement accounts was increased in 2020 to 72 from 70.5. Therefore, your first RMD must be taken by April 1 of the year in which you turn 72. After that, your RMDs must be taken by Dec. 31 of each year. Failure to do so means a penalty of 50% of the required RMD. Retirees may without penalty withdraw more than the RMD.
How Do I Donate My RMD?
- Calculate your RMD. Use these RMD worksheets to find out what your minimum is this year.
Plan your withdrawal. Decide which account(s) to make withdrawals from, and how much of that withdrawal you plan to give. You may have an RMD total and certain accounts with individual RMDs; learn more. - Arrange your donation(s). Choose a qualified 501(c)3 organization, or multiple, to support. This is an opportunity to increase your giving to a favorite nonprofit or find a new organization, or organizations, to donate to. Use Hot Topics lists to find high-quality organizations serving a range of causes or search for an organization you know of on Charity Navigator to ensure that your money is going to a reliable nonprofit.
- Give your gift(s). Up to $100,000 of your distribution from an employer-sponsored retirement account (including but not limited to your RMD) is a QCD. Make your donation by December 31 to qualify this year.
- Collect your benefits. When you file your taxes for the year, include your donation on the relevant tax document (Form 1099-R, Form 1040, or Form 8606).
- Look ahead to next year. Once you meet the criteria for an RMD, you will have one each year until the account is depleted, barring significant policy changes. This is a good time to start planning how you will distribute next year’s withdrawal. Be aware that changes to the tax code could shift your RMD and related processes year to year.
Source: CharityNavigator.org
