The last couple of years have been a rough one for many charities out there. Most have experienced an increasing demand for their services while simultaneously seeing a large drop off in donations – not a good recipe, to say the least. Luckily, recent tax code changes have brought back to life a little-known tool that can help tremendously.
This tool applies to anyone over the age of 70½ that is currently being forced to take money out of their IRA accounts through RMDs (required minimum distributions). So, this applies to everyone over 70½ that has a retirement account.
The trick here is that the IRS now permanently allows individuals to give money to churches/charities/organizations by directing all or part of their RMD and have to pay zero taxes on it!
This is a huge deal! Why? Two reasons; one, most people over 70½ typically don’t have enough other deductions to itemize on their taxes, especially with the much higher standard deduction of $24,400 for married people and $12,200 for single people as part of the Trump tax cuts. What this means is that many are no longer getting a tax break by donating to churches or charities. Even if they do, the money taken out of their IRA account through an RMD counts as income on their tax return and as a result could get as much as 85% of their Social Security taxed! If the money, though, is given as an RMD distribution and goes straight to the charity/church/organization without it coming to the individual first, both of these tax pits are avoided.
How much difference does this make to charities?
So, how big of a difference can this make? For one person, using this simple and easy technique yielded an extra $4,502! In this case they elected to take the extra $4,502 in tax savings and give that to the charity also (resulting in a 60% increase in their donation), but they could have used it for something else like a nice vacation if they wanted.
The point here is that charities are hurting and there is a simple easy way for anyone over 70½ with a retirement account to in many cases significantly increase the amount a charity gets while costing themselves $0 extra. However, there are a couple of critical steps that must be done properly. If they are not, all savings and the possibility of a charity receiving more money are gone.
If you or someone you know are over age 70½ and give over $2,000 to any churches/charities/organizations, contact your financial advisor, so that you can help those in need get the maximum amount possible.
For more information, call 785-228-0222 or visit the website if you or someone you know fits these criteria.
–Ryan Shumaker, Smartvester Pro at The Retirement Team