Please advise me on how to avoid taking annual IRA payouts at age 70 1⁄2. I’d like to leave this money for my children and grandchildren. I’m 68 years old and receive help from the government, but basically I live on my Social Security check. Taking the payouts will change some of the benefits I receive for help in my daily life.
There’s no way to avoid annual required minimum distributions, known as RMDs, from your retirement accounts after age 70 1⁄2. (The only exception is your current employer’s 401(k) plan, unless you own 5 percent or more of the company you work for.)
The penalty for not taking RMDs is a whopping 50 percent of the amount you should have taken, plus interest. There’s no legal requirement to spend them, however. People who can afford to save their RMDs in a taxable account can still earmark it for their heirs.
Paradoxically, RMDs can create problems by increasing your taxable income. Higher income may affect your eligibility for government housing, food and health insurance benefits. It can also push you into a higher tax bracket, triggering higher taxes on your Social Security benefits and surcharges on your Medicare premiums.
The only way to avoid paying taxes on your RMDs is to donate them to charity as qualified charitable distributions, known as QCDs. These must go directly from your IRA to the charity. A QCD satisfies the RMD requirement without increasing one’s taxable income.
The law extends the deadline on your first RMD. If you turn 70 1⁄2 in 2020, for example, you can postpone your first RMD until April 1, 2021. But you must take the second RMD by Dec. 31, 2021; and all subsequent RMDs must be taken by Dec. 31.
THE BOTTOM LINE You must take annual RMDs after turning 70 1⁄2.
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