Q: In your last Post Register article, you talked about IRAs and the associated RMDs 72 and over. You didn’t mention whether there are donation / deduction options before 72 (but after retirement) that also allow deductions – just not “required”. Also, you didn’t mention 401Ks which I believe will be treated the same as an IRA? The reason I am asking is because several missionary friends say they are using the 401K deduction for church donations even though they are “before 72” (currently). When I read the IRS rules it doesn’t seem like an option. I can’t find out if they have “creative accountants” (all are advised by CPAs on their taxes) or if it is legal. My own CPA daughter (after reading the Articles of Association) believes it is not (although admittedly she is not an expert on tax law).
A: The provision mentioned in my previous column only applies to RMDs (Required Minimum Distributions). Distributions to charities prior to age 72 RMD requirements are not excluded from income tax.
As you indicated, 401Ks are treated the same as IRAs.
RMD distributions to a person under the age of 72 are taxable. If this money is donated to a church or other charity, it can still be deducted as a single deduction, but due to the current high standard deduction ($ 24,800 (plus $ 1,300 for each spouse over 65) for a return together in 2020 and $ 12,400 (). Plus $ 1,650 because the taxpayer is over 65 years of age (for a single taxpayer in 2020) most people cannot disclose, and since the standard deduction would otherwise be available, they essentially only get the deduction for the amount that is above the standard deduction that they would receive anyway.
As you probably know, the RMD requirements only apply to “traditional” IRAs and 401Ks as opposed to “Roth” IRAs. This is because the Roths were previously taxed and therefore neither the Roth capital nor the income from the Roth is taxable to you when you receive distributions from it. Therefore, the comments above would still be relevant to the deductibility of the Roth charity distribution. You are therefore entitled to the individual deduction, but only receive this to the extent that it exceeds the standard deduction that you would receive in any case.
You should therefore rely on your CPA daughter and not on your “friends” for your tax advice.
Robert E. Farnam is an attorney in Idaho Falls. This column is provided by the 7th District Bar Association as a public service. Send questions to It’s the Law, PO Box 50130, Idaho Falls, ID 83405, or email firstname.lastname@example.org. This column is for general information. Readers with specific legal questions should consult an attorney. A lawyer referral service is available by calling the Idaho State Bar Association in Boise at 208-334-4500.