Christina Platt has been an RFC board member for ten years and is currently the Board Co-Chair. Before that, she was the RFC’s socially responsible (SRI) investment advisor. Now referred to as ESG (environmental, social and governance) investing, advisors work with clients to generate returns while aligning their portfolios with their values and hopes for the future. Below, she shares her thoughts on the charitable uses of required minimum distributions (RMDs) from retirement accounts.
For those of you who have been contributing to tax-deferred retirement accounts, I have some good news and some bad news. First the bad news: Taxes cannot remain unpaid forever. According to IRS regulations, if you will be 72 years old by the end of this year, you must take a minimum withdrawal from your retirement accounts - including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, 457(b)s, profit sharing and other defined contribution plans. The formula for calculating the amount required to be withdrawn is complicated and I advise you to discuss this with your financial advisor or with a representative of the custodian of your account. The AARP also has a very useful section of their website devoted to this issue.*
Now for the really good news: When you write a check or have funds electronically transferred directly from your traditional IRA, inherited IRA, inactive Simplified Employee Pension (SEP) plan or inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs to a qualified charity, you don’t have to pay a penny in taxes on the full amount of your donation. [Note: Rules for making charitable donations from other types of retirement accounts, including 401ks and 403bs, vary. Contact your account custodian or advisor for specific rules for your plan.] Of course, I happen to have the RFC in mind!
Aside from the direct charitable benefit, there are at least three other positive side effects to consider.
1) During my time as a portfolio manager, I noticed that making charitable contributions sometimes helped my clients avoid being pushed into a higher tax bracket - since withdrawals are taxed as ordinary income. Be sure to note that it is a minimum requirement and you can actually make any size donations and save yourself several hundreds, if not thousands, of dollars. This is worth discussing with your accountant or CPA.
2) I had two clients who had inherited accounts chock full of fossil fuel stocks and even McDonnell Douglas, a major defense contractor. I shared in the distinct pleasure they took in donating the proceeds from selling these holdings to the non-profits that meant so much to them.
3) If you have children, grandchildren or other youngsters in your life, take the time to discuss all of this with them. It’s an opportunity to transmit your values to the next generation. My sixteen year old granddaughter is fascinated by where I choose to make donations and enjoys imagining what she would do. One hint: she’s swiped my RFC Family Gathering t-shirt.
I hope you'll consider donating your RMD to the RFC, now or in the future. If you decide to donate in this manner and need additional information to process the contribution, feel free to contact the RFC at firstname.lastname@example.org.
*These three AARP links will provide you with lots of useful information, including their RMD calculator, an overview "Know the Rules for Taking RMDs from Your Retirement Savings", and a Q and A about Individual Retirement Accounts, RMDs and more.