This message is about supporting Clark Lake’s future while dealing with a required minimum distribution (RMD) from an IRA or inactive SEP/Simple IRA.
Here’s a quick explanation. The distributable portion of your IRA is added to, and taxed as ordinary income. Your tax bracket determines the degree of pain. If you don’t need all or part of your RMD, consider skipping the tax consequence through use of a qualified charitable deduction (QCD). The Clark Lake Spirit Foundation is an IRC § 501(c)(3) tax exempt organization and is qualified to receive a QCD. This is one method to avoid painful taxes and benefit Clark Lake’s future.
Taxpayers who own tax deferred retirement savings accounts (Traditional IRAs, inactive SEP and Simple IRAs) must begin taking taxable withdrawals (RMDs or Required Minimum Distributions) annually based on their birth year.
- Taxpayers born in or before 1950 started annual withdrawals in the year they became age 70-1/2.
- The new rule is “73 in 23”: if you’re 73 in 2023, you must start RMD withdrawals in 2023.
Since tax-deferred accounts permit the taxpayer to defer income taxes on their contributions and earnings during working years, distributions from these accounts are taxable and reported to the taxpayer on Form 1099-R and taxed on Form 1040.
A special rule permits income tax exclusion for distributions to qualified charities, providing certain conditions are met:
- The taxpayer must be age 70-1/2 or older.
- The QCD distribution must be taken from the taxpayer’s Traditional IRA, Inherited IRA, or inactive SEP or Simple IRA.
- The QCD distribution must be payable to a qualified IRC § 501(c)(3) charitable organization.
- The QCD funds must flow from the taxpayer’s IRA directly to the receiving charity.
- The QCD distribution will qualify as an RMD distribution.
- Inherited IRAs mandatory distributions are eligible for QCD treatment.
- Total QCD distributions are capped at $100,000 per taxpayer per year ($200,000 on joint returns).
- A QDC reduces both Adjusted Gross Income and Taxable Income. An itemized charitable deduction on Form 1040 (schedule A) reduces only taxable income. Therefore, a QCD deduction also reduces the gross income starting point for state and local taxes.
The Clark Lake Spirit Foundation does not offer or provide tax advice. Please consult your tax advisor.
Contact the Foundation via email at ClarkLakeSpirit@gmail.com.
