Upon reaching age 72 ½, we must begin taking RMDs from our qualified plans. After years of funding these plans with pre-tax dollars and achieving tax-deferred growth, we are now obliged to pay income tax at ordinary rates on required withdrawals. We expected this. But are there ways to ease the tax burden?
Qualified Charitable Distributions (QCD)
For those who make recurring annual charitable contributions, making those gifts from your IRA RMDs (up to $108,000 in 2025) enables you to avoid income taxes on RMDs made to charities outright. These tax savings do not apply to gifts to private or supporting foundations, donor-advised funds, or in exchange for income payable to you other than through the one-time use of a charitable gift annuity (CGA) as described below. Making some or all of your charitable gifts in 2025 from your IRA RMD may provide tax-wise planning using distributions you would otherwise be taxed on.
Lifetime Income Using an RMD
For 2025, you are allowed to use up to $54,000 of your RMD to purchase one or more CGAs in one calendar year without liability for income taxes on this IRA distribution. In effect, you will be substituting the investment in your IRA (which you had to liquidate to take your RMD) for a lifetime fixed-rate annuity amount for one or two lives (yours and your spouse’s). Under current rules, you can only do this once in one calendar year. Perhaps 2025 will be that year for you.
A CGA pays lifetime fixed-rate income and may be a very desirable investment to include in your retirement income planning—whether you use funds from your RMD, cash from your savings, or other income-producing investments.
Please check in with us for your personalized lifetime CGA rate.
For more information about QCDs and other opportunities, please contact us at plannedgiving@afhu.org or 212.607.8524.
