How to simultaneously help others and yourself this Holiday season...

As we move further into the holiday season, time is ticking to find the perfect gifts for our loved ones. If you missed Black Friday or Cyber Monday, you may find yourself hard-pressed to find any deals at this point. Hopefully you’ve planned ahead and found gifts that your family or friends can enjoy. Perhaps you yourself made the “nice” list and will be the recipient of appreciated gifts as well.


The clock is also wearing thin for those of you who happen to own Individual Retirement Accounts (IRA’s) and have reached the age of 70 ½. At this special moment in life, our friends at the Internal Revenue Service say you may no longer sit on your IRA savings (if you haven’t been utilizing the money already) and must commence taking Required Minimum Distributions (RMD’s) from your IRA. The reason being is that for some people, they were allowed an upfront tax-deduction for their IRA contributions and over time deferred paying taxes on the invested funds. While the IRS is benevolent enough to allow the upfront deduction and tax-deferred growth, they want their taxes eventually.


So, for those that have reached the magic age of 70 ½, the RMD’s must be taken, or face a stiff penalty. If an RMD fails to be withdrawn, the IRS will apply a 50% penalty on the amount required. For example, if your RMD was $4,000 and not properly dispersed, $2,000 would be forfeited as penalty. So, off the top, you just lost half of your withdrawal, and it gets better. The IRS will count the ENTIRE $4,000 required amount towards your taxable income for the year. Isn’t that great? You only get to keep half and pay tax on the whole amount! Paying attention to satisfying this RMD each year requires the most diligent care.


There is a way, however, that you could withdraw the required amount and elude any taxation. If you’re in a position to not actually need the money from your IRA and are in the holiday spirit of giving, an option exists for you to both satisfy your RMD and offer a charitable gift without any tax implications.


This type of strategy is referred to as a Qualified Charitable Distribution (QCD) and functions as follows. You simply request a withdrawal from your IRA custodian, i.e. the company that holds your investments, to send funds directly to a qualified charity. It is critically important that the funds are sent directly to the charity and not made payable to yourself. You certainly could withdraw the money yourself and then write a personal check to the charity, but this would make the withdrawal taxable to you. Proper execution of the QCD could create the following positive results:


1. The Qualified Charity receives an immediate donation.

2. You will not have to claim the distribution as income and thus save on your overall tax liability for the year.

3. Depending on the amount of the QCD ($100,000 maximum each year) the withdrawal will lower the amount of your IRA balance and may decrease the amount of an RMD for the next year.

If you are in a giving spirit and fortunate enough to not need some of the money you’ve saved, our team at Strategic Tax and Retirement would be happy to demonstrate how a QCD could impact your financial situation. Our Retirement Positioning System (RPS), the proprietary, patent-pending software we’ve created can quickly and concisely demonstrate the tax impact of a qualified charitable donation. Act now as 2019 is quickly coming to end and schedule a no-obligation consultation to see how you may lower your taxable income.


Happy Holidays from your team at Strategic Tax & Retirement


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