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Mike Banasiak, senior adviser at Iron Horse Wealth Management LLC in Johnston.

Seniors Can Make Donations From IRAs Tax-Free

With just about any cash donation, you’re giving funds that at some point have been taxed. But there is a way – a slender one at that, and reserved only for seniors – to make a donation that is completely free of taxes and in fact may have profited by wise investing.

Withdrawing funds from an individual retirement account triggers an income tax liability. And isn’t it a little irksome that those withdrawals are taxed at ordinary income rates even though they may include some long-term capital gains that outside of an IRA would be taxed at no more than a 20 percent rate?

When it comes to giving that IRA money away, though, the Internal Revenue Service has now made permanent a ruling that once you reach age 70½ you can make a donation from an IRA that is tax-free. Zip. Nada.

Note the fine print, however. For starters, payment from the IRA must be made directly to the charity. Do not cut a check to yourself, and then forward the funds to the charity, as that is a taxable distribution.

Also, that 70½ age: The year during which you reach that age is when RMDs – required minimum distributions – kick in and you must start to take money from your account. Before that age, withdrawals are voluntary. And donating funds from an IRA before age 70½ does not earn that tax exemption.

Mike Banasiak, senior adviser at Iron Horse Wealth Management LLC in Johnston, said there also is an upper limit as to how much you can give in this manner. It’s $100,000 per year, or no more than your RMD. So if your RMD is $72,000, you can only give that much tax-free.

"At that point you can really work down your taxable income situation," said Banasiak. Because if you had taken that $72,000 out as a withdrawal payable to you, it would be taxed.

Internet apps abound on determining RMDs. has a pretty simple one: Plug in a $2 million IRA account, for example, an annual return of 5.5 percent, current age 74 and beneficiary spouse at age 70. Your RMD is $84,033, so you can give away that much tax-free.

"If you tithe, give it out of an IRA," said Dennis Markway, CEO of Iron Horse. "It’s the most efficient way you can give."

This rule applies only to IRAs. But if you have another type of tax-favored retirement account that can be rolled into an IRA, you can do that and then donate.

"You cut Uncle Sam out of the mix entirely," said Banasiak.
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Legacy Bridge

You’ll Have to Wait Out the New Tax Deduction Limits

For all of you who ended up losers by way of the new tax bill, take heed: It’s not forever. Corporate tax rates were changed forever. Personal tax deductions and changes not so—they are temporary and expire at the end of 2025.

This means, for example, that the $10,000 deduction limit on itemized returns pulled from SALT—state and local income taxes—will lapse at that time, and starting in 2026 the cap goes away. Ditto for changes to the alternative minimum tax calculation and lifting of estate tax exemptions.

In some cases, there are a few twists to your approach to taxes. Take mortgage interest deductions, for instance. The old limit was that $1 million of mortgage interest was deductible. Now, it is $750,000. But lawmakers pegged the start date at Dec. 15, 2017, unlike other changes that did not take effect until this tax year, starting Jan. 1.

The $1 million interest rate cap was grandfathered in for qualifying mortgages that were taken out anytime before Dec. 15. That applies even if they are refinanced during the "temporary" change period that expires at the end of 2025.

Obviously, you can still acquire a $1 million mortgage. You just can't deduct interest on any more than $750,000. Once we get to 2026 you can go back to the $1 million limit on the same mortgage. So hang tough.
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801 Chophouse

Guest Opinion: Talking to your children about money

As both a mom and a financial planner, I want my 1-year-old son, Brock, to grow up to be financially independent and make wise financial decisions. There are two significant truths that can help. First, the best way to learn to handle money well is to handle money. Second, the best way to learn to make good financial decisions is to — you guessed it — make financial decisions. Read more
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How to Get Along with Your Financial Frenemy

Are rising interest rates friend or a foe? The answer often depends on how quickly you respond. > FULL ARTICLE

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