If you are age 72 or older, the IRS requires you to take a required minimum distribution each year from your tax-deferred retirement account. Did you know that you can donate all, or a portion of your Required Minimum Distribution directly to United Way of Pickens County or another charity? It's called making a Qualified Charitable Distribution.
A Qualified Charitable Distribution is a transfer of funds from your IRA payable directly to a charity. Amounts distributed can be counted toward satisfying your annual Required Minimum Distribution. The Qualified Charitable Distribution is excluded from your taxable income. This isn’t the case with a regular withdrawal from your IRA, even if you use that money to make a charitable donation later.
Here are four ways that a Required Minimum Distribution can increase your taxes:
1. A Required Minimum Distribution can push you into a higher tax bracket. Since distributions are ordinary taxable income, it can push some retirees into a higher marginal tax bracket.
2. Medicare surtax. Required Minimum Distributions also increase the taxpayer's modified adjusted gross income, which could trigger the 3.8% Medicare surtax.
3. Taxing Social Security. Even modest withdrawals from a retirement account can cause Social Security benefits to become taxable for federal income tax, up to 85% for single filers with income above $34,000
annually or married couples with income above $44,000.
4. Medicare Part B & D Premiums are calculated using a taxpayer's modified adjusted gross income from the prior year. So large Required Minimum Distributions can cause sharp increases to your Medicare costs, with the wealthiest taxpayers paying up to 80% of the cost.
Be sure to contact your local financial planner, accountant or attorney to discuss your specific situation before making a donation.