RMD season presents planning opportunities

RMD season presents planning opportunities

December can be a busy month for clients, particularly those 70½ and older who must take required minimum distributions from their retirement accounts before year-end.

This requirement may present a planning opportunity to meet with clients who may not rely on these distributions for income.

Help family members save for college
Grandparents may use RMDs to fund a 529 college savings plan for their grandchildren or other family members. The distribution must be reported as taxable income, but the money invested in the account will grow tax free and can be used to pay for qualified college expenses. Also, funds in a 529 account held by a grandparent are excluded from the calculations to determine a student’s eligibility for financial aid.

Use IRA assets to donate to charity
Clients age 70½ or older may also use distributions from their Individual Retirement Accounts (IRA) to make tax-free donations to charity. Account owners can donate up to $100,000 tax free from their IRA each year as long as the money is transferred directly to a qualified charitable organization. By making the donation, clients can satisfy the RMD requirement without reporting additional income. For details and limitations, explore the investor education article, “Donating IRA assets to charity.”

Clients should meet with a tax professional to discuss how these strategies may be implemented with their individual financial situation.


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