The Retirement Gift That Keeps on Giving
BY RANDALL SANADA, CFP, CKA
Lern why Retirement giving is 3 times sweeter every year with a Charitable IRA Rollover (or QCD)
How Bonnie Turned a Tax Problem Into a Blessing
When Bonnie turned 72, she faced a problem many seniors know too well. The IRS was about to start taking bigger bites out of her retirement savings. Every year, she'd have to pull money from her IRA account and pay taxes on it. This is called a Required Minimum Distribution, or RMD for short.
"I was upset about paying all those extra taxes," Bonnie told her financial advisor. She had worked hard her whole life and saved carefully for retirement. Now the government wanted more of her money each year.
But her advisor had good news. There was a special rule that could help. It's called a Qualified Charitable Distribution, but we like to call it a "Harvest Fund."
The Simple Solution
Here's how it works: Once you turn 70½, you can give up to $106,000 from your IRA directly to charity each year. (or $216,000 a year if you’re married filing jointly).
The best part? You don't pay any taxes on that money. It's like getting a free pass from the IRS.
Even better, this donation counts toward your required withdrawal. So instead of taking money out and paying taxes, you send it to help others and pay nothing.
Bonnie loved this idea, but she had one concern. She'd never been much of a giver before. She wasn't sure which charities to support.
"No problem," her advisor explained. "You can put the money into a special fund called a Designated Mission Fund. Think of it like a giving account. The money goes there now, avoiding taxes. Then you can decide later which charities to support."
A Change of Heart
Bonnie tried it and was amazed. Not only did she avoid thousands in taxes, but something unexpected happened. She started learning about different charities and the good work they do.
The next year, she did it again. And the year after that. Each time, her giving fund grew. More importantly, Bonnie discovered something she never expected: the joy of helping others.
The Real Reward
One day, Bonnie came to see her advisor looking a bit embarrassed. She had taken $20,000 from her savings account, she explained. Her longtime housekeeper had become a dear friend over the years. The woman was driving an old car with a window held up by duct tape.
"So I took her to the car dealership and bought her a better car," Bonnie said, her eyes filling with happy tears.
Her advisor was moved by the story. Bonnie didn't ask about tax benefits for this gift. She didn't care about the taxes anymore. She had discovered something much more valuable: the happiness that comes from helping others.
Why This Matters
Bonnie's story shows us something important. What started as a way to avoid taxes became something much bigger. It became a way to find purpose and joy.
The Harvest Fund idea isn't just about saving money. It's about:
Avoiding extra taxes on your IRA withdrawals
Keeping more of your Social Security benefits (since lower income means less tax on Social Security)
Building a fund you can use to help causes you care about
Finding new meaning in your golden years
Getting Started
If you're 70½ or older and have money in an IRA, you might want to ask your financial advisor about this option. You don't have to give away huge amounts. Even small donations can make a difference in someone's life while saving you money on taxes.
Remember Bonnie's story. She started with a tax problem and discovered the gift of giving. Sometimes the best solutions to our problems lead us to our greatest joys.
As Bonnie learned in her final years, there's something special about making a difference in someone else's life. And if you can do it while keeping more of your own money? That's what we call a win-win.
