Avoid Income Tax? How to Use RMDs for Charitable Giving

Avoid Income Tax? How to Use RMDs for Charitable Giving

Are you a Lockheed Martin employee or retiree who is in the stage of life where you now have Required Minimum Distributions (RMD) from your tax-deferred investments (IRA, 401k, 403b, 457, etc.)? Did you know that you can avoid paying income tax on your RMD by donating it directly to a charity? Yep, that’s right! You can meet the IRS requirements and still fulfill your annual charitable donations. How do you do that you ask? Keep reading to find out.

When you have an RMD that needs to be met, you have three things you can do with the required withdrawal. 

  1. You can have it withdrawn and sent to you to spend however you’d like. 
  2. You can have it withdrawn and reinvested into a non-qualified (non-retirement) account. 
  3. You can donate it directly to charity, and thereby avoid income tax on it. This is called a qualified charitable distribution or QCD.

Of course, you can mix and match these three options however you’d like.  But for many people who donate to charity each year and have an RMD, the third option can be quite beneficial.  Here’s how. 

When you have your RMD sent directly from your investment account to the charity of your choice, the withdrawal satisfies the IRS rule for meeting the required minimum distribution. Withdrawing funds this way also, keeps the RMD funds out of your taxable income as the money was never received by you since it was sent directly to your listed charity.  

Now, you do not get the charitable deduction on your income tax with a QCD, donating your RMD directly from your investment, but you also do not pay income tax on those dollars which is often much higher than the deduction you may have received.  

It is important to note that there is a limit on how much you can donate directly to charity and avoid income tax.  That limit is currently $100,000. You also don’t have to be 72 years old to take advantage of the QCD. You only need to be at least 70 ½ years old to take advantage of the QCD. The Secure Act raised the RMD age to 72 but didn’t raise it on the QCD!

Knowing details like this is what we do!  We help clients every day make wise decisions about their finances and we can help you too.  We have Lockheed Martin specialists who are well-educated in your benefits and in the science of financial planning.  Click here or call 817-210-3444 to schedule a complimentary consultation today. 

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Be sure and check back next week for more incredibly valuable information. Cheers!

Disclosures*

Financial Planning and Investment Advisory offered by SWMG, LLC a Registered Investment Advisor.

This blog is being provided and sponsored by Strittmatter Wealth Management Group, LLC. Lockheed Martin and its subsidiaries do not endorse, recommend, or make representations with respect to any information, advice, services, or products discussed in this blog. 

Lockheed Martin Retirement Specialist is not an official title or professional designation nor is it conferred by Lockheed Martin on any individual or company.

Our Complementary consultation and free report are for informational purposes only and provided free without any obligation to utilize or retain our investment advisory services.

SMWG, LLC is not affiliated with or endorsed by Lockheed Martin Corporation. Our expertise comes from working with LMT employees for several years and helping them to retire with confidence.

Investing involves the risk of loss, including loss of principal. Past performance does not guarantee future results. Investment products are not FDIC insured, have no bank guarantee, and may gain or lose value. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable for a client’s investment portfolio.

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