Taxes 101 by Michele Cagan

Author:Michele Cagan
Language: eng
Format: epub
Publisher: Adams Media
Published: 2024-11-05T00:00:00+00:00

The consequences for not taking the full RMD each year is severe. You have to pay a 25% excise tax on the amount not withdrawn. If you correct that and take the RMD within two years, that penalty drops down to 10%. These penalties were reduced down from 50% by the SECURE 2.0 Act. Avoid these penalties by taking the correct RMD every year.

QUALIFIED CHARITABLE DISTRIBUTIONS

Retired taxpayers at least seventy and a half years old who want to donate to charitable organizations have an extra tax-advantaged option called qualified charitable distributions (QCDs). With a QCD, your donation gets transferred directly from your retirement account to the charity of your choice. That withdrawal does not get included in your AGI, resulting in lower taxable income. This can help you avoid owing taxes on Social Security benefits and increase your eligibility for certain tax deductions and credits. Plus, QCDs count toward your RMD, as long as you follow all the rules (see www.irs.gov).

Using a QCD works out better than if you take a withdrawal and then make a charitable donation. The withdrawal would increase your AGI and taxable income. You would have to itemize your deductions to claim the charitable contribution. If the contribution exceeds the annual IRS limit (60% of AGI for 2024), a portion would not be deductible for that year. You can sidestep all of these potential hassles with a QCD.

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