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Saturday, April 27, 2024
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Case Studies |
Gary - The Social Security IRA Rollover Donor
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Case:
Gary is a retired manufacturing worker with a substantial IRA. He has some retirement income from CDs and dividends from stocks. With his regular retirement income, his Social Security payments are taxable at 50%. However, Gary also has a large IRA. At age 78, the federal rules require a larger taxable IRA distribution each year.
Question:
With Gary's required distribution from his IRA increasing his taxable income, he knew that up to 85% of his Social Security payments would soon be taxable. It is an understatement to say that Gary did not like this major increase in taxes on his Social Security payouts. Gary was involved with a local charity and makes a gift each November to help those in need. Is there a better plan for Gary this year?
Solution:
Gary spoke with the gift planner at his favorite charity and discovered that there now is the option for making a gift directly from his IRA to the charity. After learning about this option, Gary was excited about the IRA rollover and decided to check with his tax advisor. And indeed his advisor did explain the advantages of this plan.
Since the IRA rollover qualifies for part or all of the required minimum distribution, Gary could give part of his required IRA payout to his favorite charity. By transferring a portion of his required distribution to charity, Gary is able to maintain a lower taxable income. With a lower income level, 50% rather than 85% of Gary's Social Security payments may be taxed.
Gary commented, "This IRA rollover is a great plan. I helped those in need through my favorite charity, and also lowered taxes on my Social Security payments. Since I already paid taxes on Social Security when I was working, this seems only fair to me!"
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