The golden years come with much more fun than just early bird specials, senior discounts, and a subscription to AARP. It’s time to finally enjoy and reap the benefits of your life’s work. Now that you’re (likely) in retirement, you may also be thinking of ways that you can give back or leave a legacy behind after you’re gone. Thankfully, there are a variety of ways that you can do this and enjoy additional benefits. If you’re 72 or older, you’re in luck, thanks to a creative way that allows you to give back and also fulfill your Required Minimum Distribution.
What is the Required Minimum Distribution (RMD) you ask? According to the IRS, “ Your required minimum distribution is the minimum amount you must withdraw from your account [IRA, 401(k), 403(b) and/or other defined contribution plans] each year.1” This previously took effect at the age of 70 ½ but has since been changed to 72 years old. The percentage and amount that you need to withdraw is based on age and distribution period. The IRS provides a nice little worksheet to help find the percentage that needs to be withdrawn2. It is important to note that your RMD is a collective, total amount that can be withdrawn from any of your defined contribution accounts. This means that if you have an old 401(k) and an IRA, you do not need to withdraw from both accounts. Your withdrawal can be from either one (or both) of your accounts, so long as the total withdrawal adds up to the required amount.
Defined contribution plans like those listed above are tax-exempt during your contributing years. At 72, you must begin withdrawing from these accounts, at which time you would typically begin paying taxes on your withdrawals. However, there is a creative tactic you can use to your advantage. Should you choose to make a charitable donation directly from a defined contribution account, you have the ability to fulfill your RMD needs. Plus, the donation is tax exempt. This would allow you to save a little, while also doing good at the same time. Additionally, this does not have to be done all at once or specifically at the end of the year. You are free to make the distribution(s) throughout the entire calendar year.
If you’re interested in learning more about how you can use your Required Minimum Distribution for charitable giving, the Strathmore Capital Advisor team is here to help. Contact us to learn more and start giving today.