Skip to Main
The Four

Finances at Four: Qualified Charitable Distribution

9&10 Logo

If you are 70 and a half or older, there is a loophole to the IRS requirement that you have to start withdrawing from your 401(k)s and Individual retirement Accounts.

To recap, this loophole piggybacks off .

You can’t keep the funds in these accounts indefinitely. At 70 and a half years old, you have to start withdrawing from the account so that the IRS can take taxes out..

Again, if you don’t make the required minimum amount in withdrawal, there is .

So if you want that money to not be taxed, Carl Kielbasa with says there is a way around it.

The loophole

Give to charity.

“A lot of people who have to take the required minimum distributions don’t want to, they don’t want the increased tax liability,” Kielbasa says.

So what they do is give the required minimum withdrawal to an IRS-recognized charity that’s registered as a 501(c)(3). This practice, giving to charity from an IRA or 401(k), is called a qualified charitable distribution.

“What that means is essentially you are making direct withdrawal from your IRA or 401(k) to a qualified charity,” Kielbasa says. “Typically that’s going to be a 501(c)(3). What that allows you to do is take that money out and satisfies your required distribution to the IRS that you’re not taxed on.”

However, this practice is not for everybody.

The downside

Kielbasa says this practice is great for people with a significant amount within their accounts.

“Upside, if you have a charity you really love and believe in, want to give to, that’s fantastic,” Kielbasa says. “However, if you need the money, maybe not the best solution.”

So if you can’t afford to make the donation, it might be best to accept the taxes and make a normal withdrawal that follows the required minimum for your account given to you by the IRS.

Requirements

You can’t donate to charity any more than what the required minimum distribution is that’s assigned to you by the IRS.

And your donation has to be made to the correct type of charity, a registered 501(c)(3) with the IRS.

For more financial advice, visit 

9&10 Logo

Local Trending News