As all of us continue to get older, eventually, we reach that magical 70-year-old mark. At that point, many are drawing Social Security, and now have to start taking Required Minimum Distributions (RMD) from their IRA.
For a married couple, you can have $32,000 of income (which includes half of your Social Security) before any of your Social Security benefits are taxable.
Usually, by the time you’re 70, you’ve paid off your mortgage and you no longer itemize your deductions. For most folks, they still like to give a large portion of their income to their church or some other favorite charity. Unfortunately, without itemizing your deductions, you don’t get any tax benefit from your charitable habits.
Well, actually there’s a way to arrange your affairs, to be able to get a potentially almost double tax benefit for your charitable giving.
You request your IRA administrator gives all or part of your RMD to a named U.S. charity.
Let’s assume you normally give $6,700 a year to your church. If your income (before the IRA RMD) as a married couple is $22,400 and your Social Security benefits are $30,000, and you’re now going to have to start taking an RMD of $15,000 a year from your IRA (because you’re turning 70 1/2 this year), you’re facing the following tax situation.
Your taxable income before the RMD would’ve been $0. After the RMD, your taxable income would be $25,240. (Wait! By adding $15,000 more taxable income from the RMD, my actual taxable income shot up an extra $25,240?) Yes! $10,240 more of your Social Security benefits got taxed because of your $15,000 RMD.
If you had your $6,700 church donation given directly by your IRA, your new taxable income would be only $12,845. (The taxable portion of your RMD drops by $6,700).
The IRA direct gift to your charity of $6,700 reduced your taxable income by $12,395. How? It also reduced the amount of your Social Security benefits that became taxable because of your RMD. What a deal!
Did your hear? Psalms 20:4 says, “May he grant you your heart’s desire and fulfill all your plans.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. He’s on the web at BullisAndCo.com and also on Facebook.