The retirement savings conundrum of Required Minimum Distributions (RMDs)

Jean Larsen

Executive Director

Legacy Endowment Community Foundation

When planning for retirement, most of us can give ourselves a big, large pat on the back for having saved, sacrificed, and stuck to a solid plan. Now comes the part where we rest on our laurels, knowing the amounts accumulated in those retirement accounts will last about 20-25 years. Peace of mind, right?

Well, yes, except for if you’re on a slow pace to withdrawing your retirement funds. Then the IRS sets a minimum percentage you are required to take out of most types of retirement accounts when you reach a certain age. In 2023, that age is 73. The annoying part: the Required Minimum Distribution (RMD) counts as taxable, ordinary income.

What I love about the world of philanthropy is having the knowledge of certain opportunities and advantages that soften the ‘required’ part, turning the narrative into something else entirely. Good deeds. Community support. Impactful changes and important improvements. Sounds a whole lot different and far less annoying.

When an RMD is withdrawn from most all types of retirement accounts including traditional IRAs and designated as a charitable gift, it becomes a Qualified Charitable Distribution (QCD) which is not counted as being received by you as ordinary income. So much better.

Setting up an endowment fund with a community foundation allows RMD’s to be received as qualified charitable gifts into your named fund and its immediately transformed, taking on a new charitable life.

What is actually even better, you may still be able to take the standard IRS charitable deduction amount in addition to turning the RMD into a QCD (we always recommend a tax preparer is consulted for your circumstances).

So, here’s the win-win-win scenario. You were likely going to make charitable contributions anyway and you can continue to deduct them on your taxes, plus, you avoid taking the RMD as part of your adjusted gross income, and you now have an endowment fund that grows over time, providing future annual grants to organizations and causes that have meaning and importance to you, in perpetuity.

These are just a few excellent reasons to use a community foundation like Legacy Endowment as the receiver of your RMDs or any other charitable contributions. Conundrum solved.