Q: I’m turning 73 later this year and understand that I’m now required to take money out of my IRA. Should I do it right away or wait until later in the year?
A: Honestly, your timing for your required minimum distribution (RMD) is quite personal. The deadline for taking your RMD is technically December 31, but you can certainly do it anytime during the year.
If you need the cash for living expenses, I’d say just go ahead and take the money out of your IRA when you need it. If you tend to get really busy, near the end of the year, it might be wise to get it done earlier. But, if you don’t urgently need the money and usually donate to charity late in the year, consider satisfying your RMD in December after you’ve completed your direct-from-IRA donations.
Q: We’re still not earning very much on our cash sitting in the bank. We’ve finally noticed some decent savings rates on CDs. Should we invest in them now?
A: The short answer is, yes, you should absolutely be earning interest on your cash savings. Luckily, you now have some choices.
Besides purchasing CDs at your bank, which can be convenient, you might think about transferring your surplus savings into a brokerage account. Money market rates currently sit at about 5.25%. With an electronic link established, you easily zap money back and forth between your brokerage account and bank account.
Ultimately, if you’re earning less than 5% on your cash, it’s time to act.
Q: Last year, I donated money directly to charities right out of my IRA for the first time. I’m unsure of how to get the tax benefits. Will my donations be included on my usual tax reports from my brokerage firm, or do I have to keep track of it all?
A: It’s fantastic that you’ve used the smart tax planning tool of giving directly to charity out of your IRA. With the standard deductions today, most people aren’t able to deduct charitable donations funded from their regular checkbook. Using your IRA is a great way to support your chosen charities and still enjoy a tax break.
Whenever you take money out of your IRA, your brokerage firm will provide you with a Form 1099-R showing you all the dollars withdrawn in the prior year. That’s true whether you donated every penny to qualified charities or happened to spend it all on a family vacation. If it came out, it’s shown on your Form 1099-R.
So, to get the tax break, it’s absolutely up to you to inform your tax preparer about your total direct-from-IRA donations. If you fail to communicate, or they don’t ask you, you could end up paying taxes that you don’t owe. And, that’s never good!