For Union alumni like Patricia Horst ’67, celebrating a 70th birthday is a wonderful milestone. But along with this life transition she must now take an annual required minimum distribution (RMD) from her individual retirement account (IRA). These RMDs are taxed as regular income within the year they are taken and can also be subject to state and local taxes.
Horst decided to avoid paying federal and state taxes on her RMD by asking her investment company to gift her distribution to Union College to benefit deserving students.
“When it’s time to withdraw the RMD, I tell my advisor I want to support Union College,” she explained. “The investment company writes a check payable to Union and sends it to me so I can designate which college fund(s) I want credited when I forward it to Union.”
Horst wants to see other students benefit from a Union College experience the way she did. “I’m thankful for the education I received at Union College,” she said. “I realize I could reinvest the money and let it become part of my legacy gift, but I enjoy seeing the money put to a good use while I’m living.”
Directing your RMD to a charity will NOT qualify for a charitable deduction, however you will avoid paying federal and state taxes on the RMD. Your RMD cannot stay in a tax-deferred account so directing the funds to charity is a viable option as opposed to spending the money or reinvesting it into a taxable account. Always consult your tax advisor to help determine your best options.
More about the required minimum distribution (RMD)
By April 1 of the following year after you turn 70½ years old, and by December 31 every year thereafter, you are required to take a required minimum distribution (RMD) from your Traditional, Rollover, SEP, and Simple IRAs. To calculate the required minimum amount, use the balance of your IRA account and divide it by the distribution period calculated by the IRS and made available at irs.gov (search for RMD worksheet).
For example, at age 72 the distribution period is 25.6, and if your IRA balance was $100,000 at the end of the previous year your RMD would be $3,906.25. If you have more than one IRA, you must do this calculation for each individual account, and then add all the RMDs together. The good news: the total distribution can then be taken from any one or more IRAs to satisfy the total required amount.
If you have questions about how your RMD can benefit Union College, contact Ken Farrow, director of leadership giving at 402.486.2600 ext 2200 or firstname.lastname@example.org
by Ken Farrow, director of leadership giving