I’m not a CFA or an Investment Advisor; I’m a retiree riding around the world on my GS motorcycle. Due to my age, I feel I’m being chased by a 500Lb. gorilla named ‘RMD’ (Required Minimum Distribution). He rides a bike with ‘IRS’ tags. As I age, every time I look, Mr. RMD gets bigger and closer in my rearview mirror. That beast is going to catch me at 73 and maybe it’s ready to catch you too. I have some thoughts to share about this and the opportunity to keep Mr. RMD at bay - for the mutual benefit of you and the BMW MOA Foundation.
What, you ask, do RMD’s have to do with the Foundation and motorcycling? Well, the simple answer is; it can help the Foundation fund training programs while being part of your retirement tax mitigation strategy. Let me shout over the wind noise to explain….
All tax-deferred accounts like traditional IRA’s, 401(k)’s, 403(b)’s,457(b), SEP IRA’s and Simple IRA’s, (but generally excluding Roth’s) are subject to RMD starting at age 73 or 75, depending on your birth year. Some exceptions exist but those are beyond the scope of this article. Based on the total value of your tax-deferred accounts you will punch your balances into an RMD calculator to find out what money you must withdraw every year. The mandatory withdrawals are taxable income at your ordinary income rate - unless you offset the impact ….
Take my situation. We know we will have RMD’s…We live happily on SSI and a low monthly draw from our investment accounts. We are fortunate we don’t need to use our retirement accounts and hope we never need to. With our lifestyle, we travel, we donate and, when we eventually wear out like the drive shaft on my GS, our kids and grandkids will smile at what’s left for them. Our strategy is to avoid paying taxes on the annual RMD’s we must take but do not need. Like wearing ATTGATT, it’s all about planning. The gear may be cumbersome but you’re glad the protection is there if you need it. If you are not pro-active with RMD’s, there is no fist full of brake that is going to stop the dull surprise of having to take money you don’t need. The question is; what to do with that money to avoid having a chunk of it paid as taxes? If this situation sounds familiar then consider putting the funds to beneficial use through donations to worthy causes that match your interest(s), and offset the income.
One of the easiest donation strategies is a ‘QCD’ (Qualified Charitable Distribution). It is a unique way to reduce the taxes associated with an RMD. The money you donate may reduce your taxes because you can exclude the distribution from your tax return. That may avoid tax bracket creep and you get to give your funds to approved charitable organizations that you choose – hopefully the Foundation (a 501c3) is among them. There are lots of rules and alternatives for QCD’s so it is important to talk to an expert (not me or the gorilla). A fellow MOA member, for example, just made a large donation to the Foundation using his RMD and the QCD provision. It worked very well! Thank you, sir, … Is it your turn to help? Something to think about and something we are eager to discuss and help you with, if interested.