Can I Save Taxes Using a 401(k) for Charity?

You can maximize your financial power if you take the appropriate steps.

You have a 401(k).

You also want to provide for your favorite charity.

According to a recent Kiplinger article titled “Making Charitable Donations From Your Retirement Accounts,” you can use your retirement account to do this.

How?

You can use the Required Minimum Distribution to provide for the charity of your choice.

What is a Required Minimum Distribution?

You are required by law to withdrawal at least a specific amount from your IRA each year after you turn 70½—in some instances it is when the individual retires.

Failing to do so means you will incur a financial penalty.

Roth IRAs do not require withdrawals as the dollars that created them have already been subject to taxation.

Once the owner dies, withdrawals must be taken from the Roth IRA.

What about if you die with a regular IRA?

The entire amount of the IRA must be either distributed to the beneficiary within five years of your death or over the lifetime of the beneficiary starting one year after your death.

What about giving to charity?

This can be done without having to pay taxes.

You must first convert your 401(k) to an IRA.

You must first take the required minimum distribution from your 401(k) for this year.

This must be done before you can complete the rollover.

You can then begin moving some money to charity to satisfy some or all of your required minimum distributions.

Is there a limit?

If you are at least age 70½, you can donate up to 100,000 to charity directly from your IRA.

This would be counted towards your required minimum distribution.

It also would not be included in your Adjusted Gross Income.

This could further help reduce taxes on Social Security benefits.

Work with an experienced financial advisor and estate planning attorney to create a plan that best meets your goals.

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.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Kiplinger (September 22, 2017) “Making Charitable Donations From Your Retirement Accounts”