Blog

Do Good with Your IRA and Pay Zero Tax on Your Required Minimum Distributions

by | Sep 11, 2020

Do Good with Your IRA and Pay Zero Tax on Your Required Minimum Distributions

 

 

 

 

 

 

 

 

Required Minimum Distributions (RMD) from IRAs can be a burden for taxpayers, by raising your annual income levels and possibly boosting you into a higher tax bracket. Using the Qualified Charitable Distribution (QCD) Rule, there is a way for IRA’s to do good. This rule allows IRA owners to exclude their RMDs from their annual income if given to a qualified charitable organization. Essentially, owners can deduct their RMDs on their tax returns if they give the money to a charity. A key benefit to the QCD is you pay zero tax on the distribution. That’s right, it’s a tax free distribution to a charity. You win, the charity wins, and the IRS loses.

Some of the rules and regulations are as follows:

  • You MUST be age 70½ or older on the date of the distribution.
  • The maximum annual exclusion per individual is $100,000.
  • The charity must qualify as a 501(c)(3) organization and be eligible to receive tax-deductible contributions.
  • Each check will be made payable to the qualified charity and list your name as donor. Note: You should follow up with the charity directly for a receipt of your donation.

To break it down further, the charitable organization must qualify as a 501(c)(3) organization, which means it is federally tax exempt as a non-profit organization. Of course the owner of the IRA can give a larger sum than $100,00 to the charity of their choosing, though any excess distributions will not be excluded from their Adjusted Gross Income (AGI). It is also very important to obtain a receipt from the selected charity for tax purposes.

Mat has been at the forefront of the self-directed IRA industry since 2006. He is the CEO of Directed IRA & Directed Trust Company where they handle all types of self-directed accounts (IRAs, Roth IRAs, HSAs, Coverdell ESA, Solo Ks, and Custodial Accounts) which are typically invested into real estate, private company/private equity, IRA/LLCs, notes, precious metals, and cryptocurrency. Mat is also a partner at KKOS Lawyers and serves clients nationwide from its Phoenix, AZ office.

He is published regularly on retirement, tax, and business topics, and is a VIP Contributor at Entrepreneur.com. Mat is the best-selling author of the most widely used book in the self-directed IRA industry, The Self-Directed IRA Handbook: An Authoritative Guide for Self-Directed Retirement Plan Investors and Their Advisors.

Related Articles

LLC Masterclass Part 2: How to Set Up an LLC the Right Way

LLC Masterclass Part 2: How to Set Up an LLC the Right Way

Setting up an LLC? Don’t just fill out a form and hope for the best. In Part 2 of Mat Sorensen’s LLC Masterclass, you’ll learn the four key steps to setting up your LLC the right way—plus critical tips on tax elections, operating agreements, and choosing the right state. If you want asset protection, clean books, and IRS compliance, this guide walks you through exactly how to do it.

read more
LLC Masterclass, Part 1: Do You Really NEED an LLC for Your Business or Real Estate Investment?

LLC Masterclass, Part 1: Do You Really NEED an LLC for Your Business or Real Estate Investment?

Not sure if you really need an LLC? In Part 1 of Mat Sorensen’s LLC Masterclass, you’ll learn the four key scenarios where an LLC is essential—and what you’re risking if you don’t have one. From asset protection to partnerships and real estate, this guide walks through when and why to form an LLC, plus critical tax considerations to avoid costly mistakes.

read more
Share This