Financial security both before and after retirement

Lower Your Tax Liability in Retirement While Helping a Worthy Cause

support nonprofit community organizations using retirement funds

Karen B. Arthur |
Posted on Jun 08, 2022

Did you know you may be able to support nonprofit community organizations using retirement funds, as well as reap financial benefits for yourself by doing so?  

Many people have worked for years saving for retirement by contributing regularly to their 401(k) plan, 403(b) plan, or Individual Retirement Account (IRA). Perhaps, you have donated to charities along the way and would like to continue to be philanthropic after retirement.

The Secure Act was officially enacted on January 1, 2020, and raised the age from 70½  to 72 for mandatory distributions from retirement plans. This means that, at age 72, you must begin taking required minimum distributions from your Traditional IRA---which are normally taxed as ordinary income---or face tax penalties on the amount that should have been withdrawn.  

A Qualified Charitable Distribution (QCD) allows money from a Traditional IRA to be donated to a qualified public charity, also recognized as a 501(c)(3) organization. Because a QCD is not permitted from a 401(k) plan or 403(b) plan, you may want to consider rolling the funds from one of these types of employer-sponsored plans into a Traditional IRA in order to take advantage of this giving strategy.

Normally, a distribution from a Traditional IRA is subject to tax since you would have received a tax benefit when the contributions were made. However, if you are age 70½ or older, you may contribute directly from your Traditional IRA to a qualified charity. Furthermore, you may donate up to $100,000 and not have it considered to be a taxable distribution, which will potentially reduce your adjusted gross income.

Ultimately, utilizing this strategy in your retirement years may help lower your tax bill while continuing your philanthropic endeavors. Understand that distribution checks from your IRA must be made payable to the charitable organization, not the account owner; checks payable to the account owner would be considered a taxable distribution. If this giving strategy is of interest, it is important to talk to your IRA custodian and/or tax advisor about this giving plan early in the tax year prior to receiving any required minimum distributions from your IRA. 

Keeping up with financial matters including retirement funds can be an overwhelming process, especially given the many facets of your personal situation. We, at NWSB Bank, like other financial advisors, often serve individuals in our community and maintain the specialized skills necessary to assist you as you pursue your financial security both before and after retirement.

Our team of trust and investment professionals will work hard to help you achieve even more.

Karen B. Arthur

Karen B. Arthur
First Vice President/Trust Services Manager