Ponderings For the Week of November 25 to December 1, 2019

Charitably Inclined? Donate Your RMD

Special Report by Nicolé Keane

Some might say that the IRS favors charitable giving. After you have reached age 70 ½, the IRS permits an annual non-taxable donation, up to $100,000 per person, from your IRA’s Required Minimum Distribution (RMD) directly to a qualified charity. This is called a Qualified Charitable Distribution (QCD).

The Details

  • Deduction type. Making a QCD is not just for wealthy individuals. Charitable gifts of cash are normally itemized deductions – capped at 60% of Adjusted Gross Income (AGI) per year. If you are charitably inclined, but have modest taxable income, this deduction may not help if you take the standard deduction. Donating your RMD to a qualified charity, however, can allow for a greater contribution to your favorite cause and a more favorable tax impact. A QCD, made from your RMD, provides a dollar for dollar reduction of income. This directly reduces your AGI, which is instrumental in calculating taxes owed on Social Security, Medicare premiums, as well as other income-contingent benefits and taxes.
  • Spousal privilege. While QCDs are beneficial if you are single, married couples have the additional benefit of the “per person” rule. Two spouses may donate up to a total of $200,000 of their RMDs from their IRAs in one calendar year, thus doubling their AGI reduction as a couple.
  • Timing caution. A frequent mistake when donating an RMD is an error in timing. An RMD is viewed as being fulfilled by the first dollars withdrawn from an IRA during a given year. In order to take advantage of the tax-free charitable distribution, your QCD should be the first distribution made during the year, up to the amount of your RMD. If you decide to make a QCD after partially, or fully, distributing your RMD, the dollar for dollar reduction of your AGI will either be greatly reduced or eliminated. The donation could then simply be treated as an itemized deduction which may, or may not, boost you over the standard deduction. As you can see, timing is vital with IRA charitable distributions.
  • No double dipping. The IRS frowns upon double counting deductions. Your IRA’s qualified charitable distribution, when made correctly, may only be counted once – as a direct reduction of AGI. It may not be counted again as an itemized deduction. A tax preparer can help you determine whether your retirement account qualifies for a QCD and how to best use this tool before you make any distributions.

Identity Thieves Work Overtime During the Holidays

Consumers need to be especially careful with credit card use during the holidays since identity thieves are working overtime. Here are a few tips:

  • Use your credit card, not your debit card since if someone steals your debit card information, they can drain your bank account. While both debit and credit cards generally offer 100% protection against misuse, it will likely take longer to be compensated for debit card losses, during which you may have no cash in your bank account, compared with a credit card.
  • Shop online only with websites you have used before or can double check the veracity of the site, since identity thieves can clone a site to obtain your credit card information.
  • Don’t sign up for a new retail card at an establishment because you’re probably required to convey personal information to store personnel with whom you are not acquainted.
  • Review your account statements more regularly during the holiday season to quickly identify any unauthorized transactions..
  • If your identity is stolen at any time, what will you do?  Do you know your rights? Identity theft continues to top the list of consumer complaints to the Federal Trade Commission. An identity thief can hijack your tax refund, alter your medical records, prevent you from getting credit or a job, and even borrow money in your child’s name. 
  • If you suspect or indeed are a victim of identity theft, refer to the very helpful FTC booklet: Identity Theft – A Recovery Plan that can be downloaded from the FTC website:



Smart Money Tips

  • Help your parents cope with later life financial challenges. In the spirit of the holiday season, strive to be a nice child or niece or nephew by helping older generation family members meet later life financial and health challenges. Here are four big ones. First, make sure they get the quality of health care they’re entitled to, including maintaining the right type and right amount of health and drug insurance coverage. Second, help them avoid falling prey to scams by always being available to offer a second opinion on anything that someone is trying to sell them. Third, make sure they are not being exploited by unscrupulous investment advisors and insurance salespeople who may put them into unsuitable investments. Ask any and all who handle their investments to send you duplicate account statements. Finally, be on the lookout for the time when your older relatives may have difficulty keeping up with day-to-day financial challenges, like paying bills and completing income taxes. You or a sibling may need to step in to help them.
  • Be realistic in planning for next year. This is the time of year when many of us begin planning financially for the New Year. It’s easy to fall into the trap of setting goals that are so ambitious that we abandon them when we fall short. Instead of concentrating on grandiose dreams focus instead on small steps that could eventually lead to achieving the bigger dreams. Experts in such matters say that breaking big goals into baby steps is the best approach. For example, rather than say something like “Next year, I’m going to increase my retirement savings plan contributions at work from 5% of my income to 15%,” begin by raising the amount that’s withheld a couple of percentage points. Once you find that you don’t miss the extra 2%, raise it some more. That’s a much better approach than trying to do it all at once.











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