Anne Frank said, “No one has ever become poor from giving.” Many people are looking for ways to help reduce their potential tax burden and charitable giving is the perfect option to help them. Retirees often choose to use their required minimum distributions (RMDs) to fund their charitable giving at the end of the year.
RMDs are considered taxable income and must be taken, whether we need them or not. Bottom line, the IRS wants their money back (taxes) which is why they mandate the funds be taken. The good news is the IRS also has tools in place to help the betterment of the world we live in while assisting those with potentially offsetting their taxable distribution.
Charitable Giving/Gifting
Charitable giving is a great way to offset the taxable burden of RMDs. Your required minimum distribution that would have been taxed as income can be directed to charity tax-free, which can reduce your annual income level.
If you would rather spend the money on grandkids at Christmas, you could still offset the income through charitable gifting of appreciated securities. You simply transfer the ownership of the holdings to a charity, receive a deduction for the full market value, and avoid potential capital gains tax.
Better Safe than Sorry
As with any charitable, estate, and tax information, run it by your tax professional and legal expert first. They may even have a better idea that better fits your situation like a Donor Advised Fund (DAF), Qualified Charitable Distributions (QCD), or Charitable Trust. It’s always better to do it right the first time rather than go back and fix the mistake then do it all over again the right way the second time.