Using your IRA to make charitable gifts will benefit you as well.
Are you retired?
Are you at least age 70½?
If yes, then you must begin taking required minimum distributions from your IRAs.
According to a recent Kiplinger article titled “The Advantages of a Tax-Free Transfer From an IRA to Charity,” making a tax-free transfer to charity from your IRA can count as your RMD.
Awesome!
But does it have to be a transfer rather than a withdrawal?
No.
But there are more benefits to doing so.
How so?
If you withdrawal and itemize deductions, you can receive a deduction on your charitable gift.
But by making a transfer, you keep your RMD from being included in your Adjusted Gross Income calculations in the first place.
Why is this ideal?
You could save significantly on Medicare premiums.
How so?
If your RMD bumps your AGI and tax-exempt income to more than $85,000 if you are single or $170,000 if you are married and filing jointly, then your Medicare premiums will be greater.
You could pay from $187 to $428 more per month on your Medicare premiums as a starting point.
Add another $13 to $76 per month for prescription drug coverage.
Yikes!
And this is only how it affect Medicare.
It could also influence your Social Security taxes.
How?
A lower AGI will bring down your "provisional" income.
Provisional income is used to calculate taxes on your Social Security.
What is provisional income?
It is your adjusted gross income (not including Social Security income), half of your Social Security benefits, and your nontaxable interest added together.
If the number is below $25,000 for singles or $32,000 for those who are married and filing jointly, then you will not owe taxes on your Social Security.
If the number is between $25,000 and $34,000 for singles or between $32,000 ad $44,000 for those who are married filing jointly, then you will not owe taxes on up to 50 percent of your Social Security.
If the number is more than $34,000 for singles or $44,000 for those who are married and filing jointly, then you will not owe taxes on up to 85 percent of your Social Security.
As you can see, keeping your RMD from your adjusted gross income is beneficial.
Is there a limit on how much you can transfer?
Yes.
You can transfer up to $100,000 tax-free annually from your IRA.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Kiplinger (May 12, 2017) “The Advantages of a Tax-Free Transfer From an IRA to Charity”
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