Lower Taxable Income in Retirement
Taxes happen to be one of the largest expenses in retirement, and taxes can increase once you start to take your required minimum distribution (RMD) at age 72. As most of you know, you have the option to distribute your RMD or up to $100,000 to qualified charities without paying income taxes on the distribution. A qualified charity is an organization that qualifies for tax-exempt status, which is typically a non-profit organization, including churches, schools, and government entities.
What if you want to make a qualified charitable distribution from your IRA but do not want to make 100% of the donation now, or you’re unsure how much you want to donate to your charitable organizations right now? There is a fund called the Donor Designated Fund in which you can contribute your RMD and eliminate income taxes on the distribution.
Facts about the Donor Designated Fund:
- May make RMD deposits which are tax-free distributions.
- You can make after-tax deposits and receive a tax deduction (if your itemized deductions exceed the standard deduction).
- May assign up to five charitable organizations to your fund – these assignments are permanent.
- May list your Donor Designated Fund in your estate for charitable bequests.
- May keep your Donor Designated Fund open forever past your lifetime to continue steady donations to your favorite charities.
- And you can invest your Donor Designated Fund within your own investment objective to allow your donations to grow before making the gift.
What are the advantages?
- Defer income taxes on your RMD for your IRA while making charitable donations.
- Deferring your income taxes on your RMD may be a more tax-advantaged strategy for someone in retirement, as the standard deduction has increased substantially and your donations may not qualify for an itemized deduction.
- Defer the income taxes now and make the donation decision later. This allows you to build your fund and make a larger, lasting gift to your favorite charity if desired.
- Create a long-lasting legacy in your name to your favorite charitable organizations.
- Easy estate planning charitable bequests.
I am a new member of the board of directors for the North Georgia Community Foundation and am learning ways to help others give generously in their community. I have recently learned a lot about the various philanthropic funds and the advantages they offer donors to have more flexibility and control with their giving. If you would like to learn more about this topic in more detail, please let me know, and I’m happy to help.
CERTIFIED FINANCIAL PLANNER™
Partner, Windsor Wealth