In the beginning, when an employee builds their qualified retirement account in TSP (and IRA or 401(k) ) required distributions seem a forever away. During the years of your career, a routine of savings and budget can build a nest-egg that, in the end, the distribution, now required at age 72, are not needed, wanted and in fact may be a problem when the taxation is considered. There is a solution:
If you are required to take a distribution (RMD) but don’t want the money or need the money or the tax, consider a Qualified Charitable Distribution.
A Qualified Charitable Distribution (QCD) allows individuals who are currently receiving your Required Minimum Distributions from the TSP or IRA or will be 72 years old or older you may to donate your RMD up to $100,000 total to one or more charities directly from a taxable IRA/TSP/401(k) etc. instead of taking their required minimum distributions.
The Charitable Distribution, you may not take the donation write off, however, you will also not be required to pay tax on the distribution.
A procedure must be followed carefully, in that, your QCD must go directly from your Qualified Retirement Account (TSP, IRA, 401(k) ) to the charitable organization. This organization can be your church, favorite charity, or university/college. Caution is called for, investigate, and make sure the entity is qualified for the donation and the QCD.
- Religious and charitable organizations typically fall under section 501(c)(3) and can receive tax-deductible donations.
- Not every section allows these deductions. For instance, social welfare and civic organizations registered under section 501(c)(4) don’t qualify.
- However, two types of 501(c)(4) organizations—veterans’ organizations with 90% war vet membership and volunteer fire departments—do qualify for charitable deductions.
You can avoid the taxation if you properly use the QCD, especially when required to take distribution and this tool will allow a by-pass of taxations.
