Back in November, we talked a little bit about using RMDs – required minimum distributions from your qualified retirement account – to decrease your tax liability by using them as charitable contributions. As of January 1, 2020, The SECURE Act went into effect, changing much that’s associated with RMDs. While The SECURE Act didn’t include any direct changes to the way charitable contributions from RMDs are handled, there are some impacts you need to know about.
Background
Prior to January 1, 2020, qualified charitable contributions (QCDs) were allowed to IRA owners who were 70 ½ or older who wanted to donate up to $100,000 annually to a qualified non-profit organization. The donation went directly from the IRA account to the charitable organization. This donation then counted as fulfilling part of the annual RMD requirement for the owner of the IRA. The contribution was excluded from taxable income, reducing the account owner’s tax liability for that year.
Impacts from The SECURE Act
The SECURE Act, which went into effect on January 1, 2020, changed the age at which RMDs must be withdrawn. The magic age is now 72, giving older workers more time to accumulate savings in their retirement accounts and allowing more time for their investments to grow before RMDs kick in. Here are the impacts you need to be aware of for 2020:
- QCDs made before the age of 72 will no longer count toward your RMDs for that year.
- You do not get any bonus points for making QCDs before the age of 72; they don’t accrue for credit toward future RMDs.
- Making a QCD from your IRA before the age of 72 may actually hurt you because you’re not getting the full tax reduction benefits from the QCD that you would after the age of 72.
Call Adams Accounting with Questions
Taxes can be confusing, and for some, The SECURE Act has made them even more so. Adams Accounting is well-versed on all the changes associated with The SECURE Act. Call today with any questions you have about tax implications as a result of this new legislation.
