Missed Colorado Gives Day? Not a problem! We are still taking donations at https://www.coloradogives.org/BlueKnights.
Taking your Required Minimum Distribution (RMD) in December? Please consider donating all or a portion of that distribution to Ascend Performing Arts. Your donation will go a long way in support of all of the great Ascend programs or you might designate your donation to our upcoming Equipment Trailer capital campaign (more information will be posted throughout 2022). This might even save you some money on your 2021 taxes!
Individual Retirement Accounts (IRA) and Required Minimum Distribution (RMD)
The Individual Retirement Account (IRA) was first introduced in 1974 with the passing of the Employee
Retirement Income Security Act (ERISA). This act allowed employees to save a portion of their income
from their employer tax free, thus reducing an individual’s taxable income by that amount. The incentive
to participate in an IRA was substantial in that these monies would be held in a qualified account and
growing based on the investment strategy and then accessed during ones retirement years. At the time
the money is withdrawn it is treated as ordinary income and taxes paid with the thought being that
most individuals will be in a lower tax bracket at retirement than during working years (yes, Uncle is
going to get his money one way or another). IRA’s have been an incredibly successful saving tool! As of
the end of the second quarter of 2021, it is estimated that there is $13.2 trillion dollars held in qualified
IRA accounts.
The Required Minimum Distribution (RMD) is the mechanism the Internal Revenue Service (IRS) uses to
insure that money is taken from IRAs and the appropriate taxes are paid. The rules governing RMDs are
as follows:
- If you reach 70½ in 2019 your first RMD would be due 4/1/2020.
- If you 70½ by 2020 your first RMD would be due April 1st of the year you reach 72.
- For subsequent years including your first year you must take your RMD by December 31st.
- Your RMD is calculated by dividing the prior December 31st balance in all of your IRA accounts by the life expectancy factor as reported annually in the IRS publication 590-B. Get a good tax accountant!
What many retirees don’t know is that they can donate all or a portion of their RMD directly to charity.
This is called a Qualified Charitable Distribution or QCD. QMDs do not provide a charitable deduction
for a taxpayer, regardless of whether you itemize deductions. Instead, with a QMD, a check is sent
directly from an IRA to the charity or charities. This allows the donor to exclude the amount (up to
$100,000) from taxable income. The following are a few reasons why someone might benefit by gifting a
portion of their RMD to Ascend:
- RMDs can push retirees into a higher tax bracket. Since distributions are ordinary taxable
- income, it can push some retirees into a higher marginal tax bracket.
- Medicare surtax. RMD distributions also increase a taxpayer’s modified adjusted gross income (MAGI), which could trigger the 3.8% Medicare surtax.
- Taxing Social Security. Even modest withdrawals from a retirement account can cause Social Security benefits to become taxable, up to 85% for single filers with income above $34000 annually or married couples with income above $44,000.
- Medicare Part B and D premiums are calculated using a taxpayer’s MAGI from the prior year. So large RMDs can cause sharp increases to your Medicare cost