Year End Giving From Your IRA

Show Notes

Of course, these are general recommendations and may not apply to everyone. You should consult with your CPA for specific advice based on your circumstances.

Okay, here are a few terms you need to understand first.

• Adjusted gross income or AGI – This is basically your income before you take your standard or itemized deduction. 
• Regular distribution – This is just money taken from your IRA after you turn 59 ½. It’s reported as income on your tax return.
• Qualified charitable distribution or QCD. This is a distribution from an IRA paid directly to the qualified charity after the owner turns 70½. In 2023, an IRA owner can make QCDs of up to $100,000 annually. The amount is not reported as taxable income on your tax return. 
• Required minimum distribution or RMD. – This is money that must be withdrawn from an IRA when the owner reaches 72 or 73, depending on their birthday. You can satisfy this requirement by making regular distributions, QCDs, or both from your IRA.

• For those 59 and a half or older: If you're in this age group and own an IRA, you have the option to make regular distributions without facing a 10% penalty. Although taxes are still applicable on these distributions, you can balance it out by making charitable gifts, which can offset some of your federal income tax. It's crucial to note that in 2023, the deduction limit for cash gifts is 60% of your Adjusted Gross Income (AGI), but this will change to 50% after 2025.
   
• At age 70 and a half: This is a pivotal age for IRA owners. You can start making a Qualified Charitable Distribution (QCD) directly from your IRA to a charity, and the best part is that this doesn't trigger a taxable event since it's not included in your AGI. A new development in 2023 allows you to use up to $50,000 of your QCD to fund a Charitable Gift Annuity. This annuity will provide regular lifetime payments to you or you and your spouse, with the remainder benefiting the charity.
• Once you reach 72: At this stage, every IRA owner must start taking an annual Required Minimum Distribution (RMD), if you haven't started already. You can fulfill this requirement with regular distributions, QCDs, or both. For instance, if your RMD is $50,000, you can opt for a $30,000 QCD directly to a charity and manage the remaining $20,000 as a regular distribution. You might also consider making that $20,000 a deductible gift to a donor-advised fund, like the one offered by the National Christian Foundation.
   

• As a parent, I'm concerned about my young, debt-free daughter and her fiancé planning to buy a house with an FHA loan and a small down payment. Is this a wise decision in the current economic climate?
• I am 65 years old and planning to retire soon. I have a $50,000 student loan and am considering withdrawing from my 401k to pay it off. Is this a good strategy for entering retirement debt-free?
• As a legal custodian of a minor receiving an inheritance, I'm exploring the best way to manage this money. Should I opt for a custodial account or a trust, and what are UTMAs and UGMAs?
• I'm 58 years old and considering taking a lump sum distribution from my pension. How can I avoid the 20% federal tax on this distribution, and what are my options for rolling it over?
• I receive a pension due to a divorce and have started my Social Security benefits. I also work part-time and am rebuilding my credit. Can I realistically save for a townhome in a few years, given my financial situation?
• Should I tithe on an insurance claim check I received for roof repair, considering it is meant to cover a loss and not an increase in wealth?