Ask the Expert: A QCD can help you avoid Medicare surcharges
Taking required minimum distributions (RMDs) will increase my taxable income. How can I avoid having to pay higher Medicare premiums as a result?
You can reduce the amount your RMDs add to your taxable income by making Qualified Charitable Distributions (QCDs) from your individual retirement account. Taking a $5,000 RMD adds $5,000 to your taxable income. But if your IRA gives $5,000 of QCDs to charity, you've satisfied a $5,000 RMD obligation without adding $5,000 to your income.
Your Medicare premiums are determined by the modified adjusted gross income (MAGI) you reported two years earlier. In 2020, single taxpayers whose 2018 MAGI was more than $87,000, and married taxpayers filing jointly whose 2018 MAGI was more than $174,000, pay premium surcharges on Medicare Part B and Medicare Part D. The size of the surcharge depends on your income. (The biggest surcharges are significant. Couples with $750,000 or more of income together pay $983 a month for Part B — $694 more than two standard Part B premiums.)
As you near a surcharge threshold, one extra dollar of income can significantly increase your premiums. For example, a married couple with $174,001 of 2018 MAGI pay $140 a month ($1,680 a year) more for Part B and Part D than a couple who reported $174,000 of MAGI — just one dollar less.
A QCD can make a difference. Let's say a married taxpayer must take a $5,000 RMD that will raise his MAGI to $175,000, for example. MAGI isn't reduced by itemized deductions, so donating his own $5,000 check to a charity won't help him avoid a Medicare surcharge. But if his IRA issues a $5,000 check to the charity as a QCD, his MAGI is reduced to $170,000.
The bottom line
A Qualified Charitable Distribution may help you avoid Medicare premium surcharges.
More information
https://nwsdy.li/IRSretirementplans
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