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What Should I Do With My RMD?

What Should I Do With My RMD?

| December 06, 2018

You may find yourself being forced to take a withdrawal from your IRA that you really do not want or need. Well, you have a whole lot of company.  This is a situation facing close to 40 million retired Americans who have hit the age of 70 ½. 

Being in good company, though, doesn’t really solve anything. You still have to take it… or more to the point, you and Uncle Sam will have to take it. After all, most Required Minimum Distributions (RMDs) will be taxed. Worse yet, they can even cause more of your Social Security to be taxed. If you are asking yourself, “Is that kind of double taxation?” Yes, that is correct. There is a formula to determine how much of your Social Security will be taxable. Any IRA distributions work against you in this formula.

The good news is that you may be able to do something about it. You still have to take your RMD, but you may be able to save yourself all the taxes. We are going to give you two great ideas to make chicken soup out of chicken feathers when it comes to your RMD.

Many of the families we work with use a strategy we call the “Charitable Swap.” If you give to any kind of non-profit (your church, local foodbank, volunteer fire department, or other charity), consider utilizing a tool Congress gave you called a “Qualified Charitable Distribution” (QCD). You can send money directly out of your IRA to a non-profit so long as it is a 501(c)(3) without the distribution ever hitting your tax return. That’s right. You avoid the tax on the distribution and potentially on your Social Security that you might otherwise have. So where is the swap part of “Charitable Swap?”

The reason we call our strategy the “Charitable Swap” is fairly simple. Most people are not really able or even wish to give more than they already do. No problem. You can just swap a few money buckets around. Honor your charitable inclinations from your IRA and deposit the money you normally send to charity into an individual, joint or trust investment account. No harm, no foul, and no taxes.

There is even more benefit to this solution in 2018 than ever before. As you may recall, we just had a major overhaul with our tax system. Tax Reform doubled the standard deductions, which means A LOT of people are losing their ability to deduct their charitable gifts. Well, now you know how to have your cake and eat it too. Get your deductions back and pay even less in taxes!

And the rest of the story…you can actually gift up to $100,000 in any given year via a QCD. We have taken advantage of this window of opportunity created by Tax Reform to help people give more to the causes they hold dear to their hearts, pay less in taxes and at the same time provide a bigger and, in some cases, a tax-free inheritance for their kids and grandkids.

If charity isn’t your thing, though, don’t think you do have options. You still have Tax Reform on your side. There is a sunset on the reform, and we are helping tons of families pay less tax now than before and create tax-free buckets for their future and the future of their children. Imagine you could create a “0” tax plan for retirement or leave a million dollars to your kids tax-free. Every situation is unique, but it just might be possible.

You have options with your RMD. Don’t just take it in the shorts because it is “mandatory.” In fact, you have opportunities with your RMD. The key is letting us help you plan. Carpe Diem!