On the Jan 1st after you turn 72, you have to start taking a yearly Minimum Required Distribution (MDR they call it) from your 401K or Individual Retirement Account savings.
You probably already know this: But I had to have it spelled out for me recently, so here it is. Forgive me for mansplaining it, no offense intended.
There’s some kind of formula, after age 72, where you have to withdraw a certain percentage of your IRA and 401K account balances, pay tax on it, then head to vegas with it. Actually in our case it’s “pay the heat bill with it”.
It has to do with our life expectancy. Let’s say the statisticians figure I have 20 years left. Then I have to take 1/20th of my IRA money and pay taxes on it. This year and every year to come. Pretty simple. The fraction I must pay taxes on grows the closer I get to the end.
The tax people published a population life expectancy table you look at. One for men. One for women. Not a special one if you look like J.D. Vance. Everybody with retirement money gets the same deal.
Whoever has your accounts (TIAA? Thrivent? Fidelity? Schwab in our case) knows all about this and will have automated the whole thing, including withholding taxes and sending the money to the government.
And this is important: you can donate money to tax-deductible charities directly from your accounts. You don’t have to pay tax on that money when it goes directly to the charity.
This is cool.
We send a check each month to our local food bank. Starting next year they can get a bit more. There’s some schtick on the Schwab web site to instruct them to do that. It’s all ethereal, until our food bank uses it to pay a farmer and gets 12 fifty-pound sacks of potatoes. Which then I, a volunteer at the food bank, have to pick up and put away. One at a time.
Charitable organizations would be very wise to mention this in the annual fund-raising letters then all send out at this time of year (December). Lots of them pitch a legacy plan (I die, they get the money), and that is fine. But they should also have a pitch like this in those letters.
If you're 72 or over, your 401K or IRA gives you, and makes you pay taxes on, a Required Minimum Distribution. Did you know you can donate some of your Required Minimum Distribtion directly to us tax exempt? If you're interested please get in touch with us.