If I give my IRA distributions, what are the tax obligations?
Q. If I transfer my minimum required distribution to a church or for a grandchild’s tuition, etc., what are the tax implications?
A. You didn’t say, but we’re going to assume your distribution would come from a traditional IRA.
If your account is a traditional IRA with tax-deductible contributions, then you can do what’s called a Qualified Charitable Distribution (QCD) if you’re over 70 and a half, said Deva Panambur, a paid planner at Sarsi, LLC in West New York and Assistant Professor of Personal Finance at Montclair State University.
A QCD is a tax-free distribution made directly by your IRA’s trustee – with the exception of SEP IRAs and SIMPLE IRAs – to a qualifying charity, he said.
“The maximum annual exclusion for a QCD is $ 100,000 and is limited by the amount of the distribution that would otherwise be taxable. Thus, the non-deductible contribution is not included in a QCD, ”he said. “Your spouse is also entitled to $ 100,000 in annual QCD if you file your taxes jointly. “
The QCD will count towards your minimum required distribution (RMD), he said.
Panambur said that if you are using funds from an IRA or any retirement account to pay for your grandchild’s tuition by paying the educational institution directly, the amount will not count towards the gift taxes and generation transfer taxes, even if it exceeds $ 15,000, which is the annual exclusion from gift taxes, he said.
You will still have to pay distribution taxes, he said.
“If your grandchild has education costs in the future, then you can open a 529 plan and transfer your RMD to that account,” he said, noting that there is no federal tax benefit when the account is funded.
Some states – not New Jersey – allow a deduction from state taxable income, he said.
“In New York, the deduction is $ 5,000 per person or $ 10,000 for spouses filing taxes jointly,” he said. “Funds in a 529 plan grow tax-free and withdrawals are not taxable if they are used for your grandchild’s eligible education expenses. “
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Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly electronic newsletter.