Tax changes, Charitable Giving, and your RMD

By Gary Silverman, CFP®

The tax changes that went into effect this year has caused quite a few changes. Some of you love the changes, some of you hate the changes, and many aren’t sure how it’s all going to impact you, so you’re reserving judgement. Recently, I talked with one of my CPA friends, Benay Ayers, about ways to get around one of those changes, at least for those of you over 70-1/2 years old.  

One of the biggest changes for most is the almost doubling of the Standard Deduction. It’s now $24,000 for married folks and $12,000 for you singles. That will have many of you who were itemizing your deductions on a Schedule A will now take the new-improved Standard Deduction. It’s estimated that this will be the case for 60% of those who previously itemized. While it won’t necessarily hurt you, you’ll notice there’s not the same benefit for any charitable donations. Of course, that will make a difference to the charity and the people that it serves.

However, Benay noted that if you’re 70-1/2 or older this year and have a Traditional IRA, there is a way to have your cake and eat it, too.

In this case, you can take the big Standard Deduction and on top of that make your charitable gifts deductible too (at least to a point). In order to do this, you would direct your IRA distribution to be sent directly to the charities you want to support. A really nifty feature is that money distributed this way also can satisfy your annual required minimum distribution (RMD). If you don’t need that RMD money to live on, and you are charitably inclined anyway, this strategy is a no-brainer.

Note that this doesn’t make the contribution to your charity deductible. Instead, it makes your Traditional IRA withdrawal tax-free. Effectively, the result is the same to your pocketbook.

Now, for those of you who still have enough to itemize above the Standard Deduction level, don’t try to do this strategy and also deduct the same giving on your Schedule A – double dipping is not allowed.

If you are older than 70-1/2, have a traditional IRA, and want to gift money to a charity, consider this strategy. Oh, and it doesn’t hurt to talk it over with your tax professional as well. There are always exceptions to the application of any planning idea and it takes someone versed in your specifics and the law to know if it affects you. Plus there are situations where you can itemize that this still might be a method to employ.

For other tax savings ideas, send me an email and I’ll send you a paper I wrote on another way to allow more deductions in light of the tax law changes.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing