RMDs Don't Have to Drive Up Your Taxes. Here's How to Avoid the Hit.

The nice thing about saving for retirement in a traditional individual retirement account (IRA) or 401(k) is getting a tax break on your contributions. The problem is that once you retire, not only are withdrawals taxable, but you're also forced to take withdrawals eventually in the form of required minimum distributions (RMDs).

RMDs begin at either age 73 or 75, depending on when you were born. And if you don't need the money, they can be a huge pain -- namely, because they can drive up your taxes.

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Imagine you're able to cover your expenses on your monthly Social Security check and dividends from a brokerage account. If you have a traditional IRA imposing a $20,000 RMD, that's an extra $20,000 getting added to your taxable income.

The good news is that there may be a way to satisfy your RMD without increasing your tax bill. If you're looking to be charitable, one lesser-known option could allow you to support a cause you care about without costing yourself money in taxes.

It pays to look at QCDs

Many people need their RMDs to cover their living costs. If that's not your situation, and your RMD is just extra money, you have a prime opportunity to donate it to charity while potentially bypassing taxes completely.

With a qualified charitable distribution (QCD), you can send funds directly from a traditional IRA to a registered charity. In doing so, you get to satisfy your RMD without increasing your tax bill.

The only catch is that there's a limit on how much you can donate via QCDs each year. The current limit is $111,000. And that's a per-person limit. So, if you and your spouse each have a huge IRA and are on the hook for large RMDs, you can each do a $111,0000 QCD to minimize your tax bill.

Now, one thing you should know is that 401(k)s do not allow for QCDs. But if you have a 401(k), that's not a problem. You can roll your 401(k) into a traditional IRA and initiate a QCD once that rollover is complete.

Plan ahead for RMDs

Knowing that QCDs exist could help you manage your RMDs more efficiently. And it's a good idea to plan ahead for RMDs so they don't upend your finances and cost you more than expected.

Remember, depending on how much money you've accumulated, maxing out QCDs may not satisfy your RMDs completely. So, the sooner you begin planning for those mandatory withdrawals, the less painful the associated tax consequences might end up being.

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