RMD question

[audreyh1]

Most discussion about IRA withdrawals concerns bean counting, the rules, and what's optimum in a given situation.

Last year I sent a QCD to a registered 501c3 organization. It was me telling the organizer that I appreciate his efforts and time throughout the years. This was 2 years before required RMD starts.

Never crossed my mind to classify it as cutting off my nose.

To each their own.

Some people prefer any excess to go to heirs.

If you feel like you don’t need the funds then gifting now to heirs is an option. It won’t give you a tax break, but it will reduce your current after-tax investments size which should reduce future taxable income.

 

[Gumby]

I look forward to the day when I can make my church pledge and other charitable contributions as QCDs. It will allow me to increase my giving without increased cost to me. After a lifetime of paying taxes for things I don't like, it's about time the government started subsidizing some of the causes that I care about.

 

[audreyh1]

I look forward to the day when I can make my church pledge and other charitable contributions as QCDs. It will allow me to increase my giving without increased cost to me. After a lifetime of paying taxes for things I don't like, it's about time the government started subsidizing some of the causes that I care about.

So you’ll be freeing up those items in your non-IRA spending. QCDs still count as total spending, just coming from a different source.

 

[target2019]

Some people prefer any excess to go to heirs.

If you feel like you don’t need the funds then gifting now to heirs is an option. It won’t give you a tax break, but it will reduce your current after-tax investments size which should reduce future taxable income.

Yes, we are gifting to the children for the past 5 years from other non-RMA IRA accounts.

I am looking forward to 2026, and will likely slice up the RMD into QCD, gifts to my spouse and heirs, and whatever other ideas come across my desktop.

Thanks!

 

[Gumby]

So you’ll be freeing up those items in your non-IRA spending. QCDs still count as total spending, just coming from a different source.

If I currently have to take a distribution from my tIRA to get the money to donate to my church, I have to pay some of that distribution as taxes. However, if I were 70 1/2 , I could take a QCD and include in my donation the amount I would otherwise pay in taxes. That's the government subsidy.

 

[audreyh1]

If I currently have to take a distribution from my tIRA to get the money to donate to my church, I have to pay some of that distribution as taxes. However, if I were 70 1/2 , I could take a QCD and include in my donation the amount I would otherwise pay in taxes. That's the government subsidy.

Oh, I see. That definitely helps tax-wise.

We currently gift from after-tax funds and a DAF. I expect total donations will increase once DH is eligible for QCDs.

 

[Gumby]

Oh, I see. That definitely helps tax-wise.

We currently gift from after-tax funds and a DAF. I expect total donations will increase once DH is eligible for QCDs.

I am actually making donations from after tax right now, but once I turn 70 1/2, I will definitely be using QCDs, because I can give more and help reduce my tIRA balance, which, after a lifetime of mismanagement, dwarfs my taxable account.

 

[youbet]

Oh, I see. That definitely helps tax-wise.

We currently gift from after-tax funds and a DAF. I expect total donations will increase once DH is eligible for QCDs.

QCD's have benefited us.

We (especially DW) have a number of charities, schools and causes we support. Before QCD's, DW was a bit random in timing and amounts given and to whom. With QCD's, I've been able to get her to set up an annual budget for giving with a total we both agree to. She give's me a list with amounts and I make the arrangements with Schwab. DW was pleasantly surprised at how large a total amount I agreed to. With less randomness (responding to fund drives or other solicitations, etc.) and a plan, I'm just much more comfortable with gifting being "significant."

Some randomness still continues. Girl Scouts still knock on the door with cookies, Little League players still sell raffle tickets, etc. But the bulk of our giving is now through QCD's and guided by a budget and plan. I like it.

 

[rk911]

If you don't need the RMD...truly don't need it then just donate it to your favorite charity via QCD.

 

[audreyh1]

If you don't need the RMD...truly don't need it then just donate it to your favorite charity via QCD.

This has already been discussed. Some prefer to give unneeded funds to heirs rather than to charities.

 

[Graybeard]

Some people prefer any excess to go to heirs.

If you feel like you don’t need the funds then gifting now to heirs is an option. It won’t give you a tax break, but it will reduce your current after-tax investments size which should reduce future taxable income.

I currently do that. I also send money to a charity I support but 10's of thousands of dollars, while they would like it, seems crazy when my beneficiaries could use that.

I have heard of the Safe Harbor concept, probably here, but never really understood it. As I mentioned before, taxes and tax prep are a mystery to me and I wouldn't dare do my taxes. I should look into what Safe Harbor is again. I am sure I didn't understand or know how to use that concept when I did look at it once before so I just said I'll keep doing what I have been doing.

Thanks for the replies. I think an early and full distribution makes sense vs doing it in early December.

 

[OldShooter]

A QCD is one method for withdrawing from a tIRA to satisfy or partially satisfy RMD requirements. That's it. Other than that, QCDs and RMDs are totally separate things. People spend a lot of time due to not understanding this.

 

[Koolau]

I take the RMD in January because:

1) I need the money to spend during the year
2) I agree that it lowers the growth of the funds - thus limiting future RMDs
3) By taking my needed yearly funds from 401(k) (no tIRA) I have no need to touch taxable funds and especially no need to touch my Roths.

Not sure this is an ideal approach but it feels right and seems to wor*k. It's also become a habit.

 

[N02L84ER]

I usually take about half in April/May and then wait until December to finish up. In December I have taxes withheld.

 

[Gumby]

A QCD is one method for withdrawing from a tIRA to satisfy or partially satisfy RMD requirements. That's it. Other than that, QCDs and RMDs are totally separate things. People spend a lot of time due to not understanding this.

I have not noticed that confusion in this particular thread, but I agree that many people don't understand the concept.

 

[Wetfly93]

While I don't need the money I want to provide those who are my beneficiaries to have as much as possible.

Speak with your accountant, your RMD taken early. Before September 1 of the RMD comes into play with your estimated tax form annualized income. This is the form that determines the penalty. If you take the RMD in January you multiply that value by 4 to determine your estimat you owe. If you take your RMD after September 1 st which starts the last quarter for this form is better IMO. I do estimates using this form, as you mentioned before the end of year capital gains can be a big hit. You can also move your RMD to a Money market IRA in January and leave it so you will not have to sell more shares if the market declines. Then remove the RMD from the money market IRA to your taxable account and begin to count it as income.

 

[frayne]

I dollar-cost average my RMDs by taking the total required amount in 12 equal monthly payments. What I don’t need is either re-invested or saved, while the rest goes into my checking account along with Social Security to cover monthly expenses. At the end of the year, I review and rationalize the balances. If there’s an excess, I typically reinvest it back into the market or purchase a CD.

 

[pb4uski]

So the QCD seems like cutting off my nose to spite my face. What I mean by that is say my RMD is $44k which is close for 2024. If I pay taxes on that $44k I keep the rest, if I donate it to a charity I keep none of that.

How does giving away $44k to save say $10k ($44k * 0.22 ~ $10k and I keep the $34k) make sense? I mentioned I am in the 22% federal tax bracket, gross income ~ $88k. It isn't like I'm in a high tax bracket with hundreds of thousands in income?

I understand if you donate to charities then a QCD can make sense. I don't so I don't see how it benefits me.

I would have thought that the bolded part would be obvious, but in any event, you got it.

I think the point is for those that are philothropically inclined that QCDs are a better way to go rather than withdraw/pay tax/donate (unless you itemize and itemized deductions and are over the standard deduction before charitable contributions).

 

[ShokWaveRider]

This has already been discussed. Some prefer to give unneeded funds to heirs rather than to charities.

+100 In our case we do not give to charities ...... while we are alive. Instead as we have no heirs or anyone that we care to give money to, we have 3 respectable Charities in our will. They are ones with at least 85% going to the cause. As opposed those that spend the majority of their donations on advertising and undefined overhead, we have read their financials. One never knows when unexpected expenses arise, we would rather be prepared.

 

[TheWizard]

85% of my tax-deferred $$ is in my 403(b) from which I take my RMD in equal quarterly withdrawals. I used to do monthly but changed to quarterly to allow more time at year end to do Roth conversions and rollovers.

Remaining 15% of my tax-deferred is in my tIRA from which I do QCDs mainly. I don't yet have a target amount for total QCDs each year, especially as I rollover more from 403(b) ---> tIRA. That will likely depend on how well my investments are doing each year together with the voices in my head...

 

[OldShooter]

We withdraw from our tIRAs during the year as we need cash. In December we withdraw and withhold our safe harbor estimated tax payment. After that, we check to verify that we have satisfied the RMD requirement. It's kind of a mystery to me why people make such a fuss over this.

Re timing of withdrawals, a goal of maximizing growth in the tIRAs would argue for a December withdrawal since statistically the asset is more likely to grow than it is to shrink during the year. I am not wound that tight.

 

[GrayHare]

If you're selling assets (equities?) to fund the RMD, sell on a day when prices have gone up, or after a longer run up. You'll be getting more value than had you sold sooner.

 

[engineernerd]

I have heard of the Safe Harbor concept, probably here, but never really understood it.

The safe harbor rule means you will not owe an underpayment penalty for 2025 if you withhold at least 100% (2024 Adjusted Gross Income below the threshold) or 110% (2024 AGI above the threshold) of your 2024 taxes. I think the threshold is $150k but don't quote me on that.

Of course you also have to pay the rest of what you owe by April 15.

 

[audreyh1]

If you're selling assets (equities?) to fund the RMD, sell on a day when prices have gone up, or after a longer run up. You'll be getting more value than had you sold sooner.

You may be, but if you don't withhold any taxes and turn around and reinvest in the same thing the same day in your taxable accounts, it's a wash.

You can do the same after long drop and rebuy the same thing in your taxable accounts - you've removed more shares from your IRA, but now they'll grow in your taxable accounts.

In terms of withholding taxes, since you have a CPA doing your taxes, get him to explain the safe harbor rule to you or at least tell you which he is using if he gives you a number. He should also discuss with you the different options you have for withholding taxes.

 

[yakers]

CDs and the charities we support really appreciate getting funds early in the year.