You will rarely hear a financial adviser recommend procrastination. However, those over age 70 ½, who are charitable, should procrastinate taking their required minimum distribution (RMD) this year. Owners of retirement plan accounts, such as 401(k) plans, 403(b) plans, 457(b) plans, and IRAs are responsible for calculating the correct amount of RMDs each year, once they reach age 70 ½. The RMD can be taken at any time during the year. Space it out evenly each month or even wait until the last day of December to make the withdrawal.
The reason to procrastinate is because the ability to make a Qualified IRA Charitable Distribution (QCD) ended on December 31, 2013. This provision allowed the taxpayer to give their RMD (up to $100,000) directly to a charity without having to first record it as income. The American Taxpayer Relief Act of 2012 temporarily extended the rule, along with a handful of other popular tax deductions. The QCD provision had very strong bipartisan backing and is expected to be reinstated at some point during the year. However, lawmakers are not inclined to act quickly, making it most likely to be reinstated retroactively towards the end of 2014.
Anyone with an RMD in 2014 planning to give any part to charity should wait to see if Congress renews this provision. There are definite benefits to giving directly from your IRA. Taxpayers who take the standard deduction receive no benefit from charitable deductions, unless it comes out of their IRA. A QCD lowers modified adjusted income (MAGI), which could potentially lower or eliminate the taxation of Social Security benefits. Lower Medicare premiums are possible for those with upper incomes because MAGI is the trigger point which can be helped by a QCD.
Lowering your 2014 tax bill requires careful planning, which should be started early. In this circumstance, get ready to wait.