When you started out saving for retirement, you may have contributed to an IRA or 401(k) through your employer. In addition, you heard that your contributions were tax-deferred, and you’d have to pay taxes when you reached your 70s. But at the time, you didn’t have to pay income taxes on whatever you contributed, so that may not have been your biggest concern.
Well, now that you’re either in or approaching that age, you need to think about both your Required Minimum Distributions (RMDs) and the tax burden associated with each distribution. Unfortunately, the more you had saved in your traditional IRA or 401(k), the more taxes you must owe when it comes time to take your RMDs.
In retirement, more income isn’t always better. Remember, you’re paying yourself, so by turning your wealth into income for a certain year, you’re signing up to pay the IRS a hefty chunk of that money. When you’re in retirement, you don’t want to be paying yourself more income than you need, but RMDs force you to take a certain level of income which can pose an issue for a tax-optimized retirement financial plan.
The good news is that there is a way you can control your tax burden and rearrange your financial habits to help you do so. The Qualified Charitable Distribution (QCD) is a way to reduce your RMD tax burden. First, if you’re using a 401(k), you must roll your holdings over to an IRA to make QCDs. By directing your IRA to distribute directly to a qualified charitable organization listed by the IRS, you can turn your distributions that would have forced you to take taxable income, into tax-deductible contributions to your favorite charity.
If you already give to charitable organizations, whether a religious institution, a community organization, or an organization championing a cause you support, you can maintain your charitable habits as well as save on taxes, helping you keep more of what you worked so hard to save. But before making charitable contributions, make sure you know the ins and outs of the QCD rule so that you don’t make a costly mistake!
Whether it’s tax-smart investing, tax-minimization strategies or other financial planning endeavors, managing retirement on your own can seem like a whole new job that requires specialized knowledge to succeed at. Well, that’s why we’re here. To get started with one of our financial advisors, contact us at (540) 720-5656.
Source: https://www.kiplinger.com/retirement/qcds-offer-tax-break-when-rmds-loom-large
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Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. Megan is also a fully licensed Life, Health, and Annuity agent. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter.