Ask the Expert: More about reducing taxes on RMDs
How can I reduce taxes on the required minimum distribution I must take from my IRA every year? My RMD is more than I need to live on. I’d take a smaller distribution if I could.
Make a donation to charity from your individual retirement account. A qualified charitable distribution counts toward your RMD, but it isn't taxable.
Let's say your RMD is $10,000. If your IRA gives $4,000 in QCDs, you only need to withdraw an additional $6,000 to fulfill your $10,000 RMD obligation. You'll pay taxes on $6,000 — and the QCD will reduce your adjusted gross income (the number that determines whether you'll pay a Medicare premium surcharge) by $4,000.
Taxpayers can take QCDs whether they itemize or take a standard deduction. But QCDs are especially appealing if you take a standard deduction, since without them you get no tax benefit for making charitable gifts.
The rules:
1) You must be at least 70½ years old when you take a QCD; 2) the QDC check must be drawn on your IRA and payable to the charity (it can't be a check payable to you that you endorse over to the charity); 3) it must go to an eligible public charity (QCDs can’t go to private foundations or donor-advised funds); 4) you can't receive any goods or services in exchange for your donation.
A QCD can exceed your RMD. The maximum QCD is $100,000 per year per taxpayer. A married couple could claim total QCDs of $200,000, assuming each person is eligible and neither donates more than $100,000 from his or her IRA.
Next week, I'll explain the rules for moving QCDs from your IRA to the recipients and how to account for them on your tax return.
The bottom line
A qualified charitable distribution counts toward your RMD but isn’t taxable.
