October 17th, 2023

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). As most of you know, you have the option to distribute your RMD or up to $100,000 to qualified charities without paying the income taxes on the distribution. A qualified charity is an organization that qualifies for tax-exempt status which are typically non-profit organizations 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.
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 the 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 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.

Christina Jones
CERTIFIED FINANCIAL PLANNER™
Wealth Manager, RJFS
Partner, Windsor Wealth

Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor Designated Fund for federal and state tax purposes.

To learn more about the potential risks and benefits of Donor Designated Funds, please contact us.

401k plans are long-term retirement savings vehicles. Withdrawals of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2 , may be subject to a 10% federal tax penalty.
Matching contributions form your employer may be subject to a vesting schedule. Please consult with your financial advisory for more information.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does constitute a recommendation. Any opinions are those of Windsor Wealth and not necessarily those of Raymond James.
Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 ½, may be subject to a 10% federal tax penalty.