By John Letts
Special to the
Opelika Observer
Are you at, or soon to be 70? Do you have an IRA? Are you committed to giving to your church, school or charitable organization? Do you provide assistance to anyone who can say yes to all 3 questions?
If you have an IRA (or most other types of retirement savings plans) you must take money from that account in the year you turn 70-1/2. When you take money from an IRA you must pay taxes on the amount you take. What if you don’t want or need the money? Or, what if by taking the money the extra income on next year’s tax form causes you to pay more for Medicare Part B or increase the amount you get taxed on your social security benefit? Well, if you answered yes to all 3 questions above Congress has given you an out.
Simply advise the custodian where your IRA is kept to send your distribution directly to a “qualified charity.” Next January your plan custodian will alert the IRS that you have sent your distribution to a qualified charity and you will not receive a 1099 form from which you would normally report such distribution as income. The result is threefold; you have fulfilled your mandated IRA distribution, you have helped your charity of choice and you have reduced your income for tax purposes.
The new “Tax Cuts and Jobs Act” is raising concern at charities all over the US. The concern results from fewer people who will itemize deductions and therefore may not give the usual amount to the charity. Your charity loves this plan and they wish more people knew about it. There is one kicker you may need to work around. Many folks give to their charity in a weekly or monthly envelope. Your IRA plan custodian will likely require that you send your required distribution only one time. Hopefully making a one-time gift each year is workable for you. You can bet your charity will like getting your gift in a single lump sum rather than over 12 or 52 payments.
John Letts is a Registered Investment Advisor and President of the Letts Group with offices in Chicago and Auburn. John can be reached at (630) 968-2323 with questions how to use a Qualified Charitable Distribution.