Rick Kalb: Winning the RMD game and helping charity | TheUnion.com

Rick Kalb: Winning the RMD game and helping charity

Rick Kalb

As my clients grow older they are contemplating how best to move from financial success to significance. One of the ways they do this is through philanthropy and helping local charities and nonprofit organizations through donations.

There is a smart way of making donations by using current tax law so as to avoid paying unnecessary taxes. You may or may not be in a position to do so.

Jim and Mary came into my office the other day for their annual review. They indicated they wanted to increase their charitable donations and wanted to know the best way to do this given their current situation.  

In the past, before working with me, they would simply write a check to the charity of their choice and then deduct the charitable contribution on their tax return at the end of the year.

Because of their current age and disciplined saving and investing during their working years they are in a position to optimize their donation and reduce their taxes.

Jim is 75 and Mary is 73. Since they are each over the age of 70 1/2 they must take Required Minimum Distributions from their traditional individual retirement accounts. In years past they had been doing this and paying the income tax on the distribution.

Because they don’t need their required minimum distributions to meet their current living expenses since they have other tax favored investments to provide income they are in a position to take advantage of a current tax law and can avoid recognizing the minimum as ordinary income by transferring the money directly from their individual retirement account’s to the charities of their choice anytime during the year.

The current tax law states the maximum amount that can be a tax-free qualified charitable distribution, each year from an IRA is $100,000.

For instance, the money Jim and Mary each transferred from their IRAs counts as their required minimum distribution, but is not included in their adjusted gross income. The law states that generally it can only come from an IRA and not other tax qualified plans like a 401K.

So in this situation, Jim and Mary don’t have to pay any tax on the RMD which goes to the charities they choose they had to follow a certain guidelines:

The money has to be transferred directly from the IRA to the charity for it to count as the tax-free transfer. Check with your IRA administrator and your desired charity about making a direct transfer.

Jim and Mary were happy to find out they had alternative ways of how to make their charitable contributions. They found making a qualified charitable distribution from their IRAs was right for them and achieved their goal of getting the intended tax benefits of which they were entitled.

Feel free to give my office a call if you would like to learn more options about gift giving or other investment planning matters.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits), Milwaukee, Wisconsin, and its subsidiaries. Securities are offered through Northwestern Mutual Investment Services, LLC (NMIS), a subsidiary of NM, broker-dealer, registered investment adviser, member of FINRA and SIPC. Rick Kalb is an agent of NM and registered representative of the NMIS based in Nevada City, CA. To contact him, call 530-470-1800, email at rick.kalb@nm.com or visit his website at rickkalb.com. Northwestern Mutual and its Financial Representatives do not render tax advice. Please see a qualified tax professional for tax advice.

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