Dear Rick:
I think I’ve been given some bad tax advice that I hope you can help me with. Last year my mom turned 70½. She was told she did not have to take a minimum required distribution until next year, which is this year, which she did back in March. My mother has been told that she now must take another distribution this year. My first question, is that right? It doesn’t seem fair she has to take two distributions this year. My mom who is a big fan of yours said that since she doesn’t need the money we could donate it to charity and she could avoid paying taxes. My mom does not itemize her deductions. I got the transfer information from my mom’s church that she wants to donate the money to, and when I gave it to the bank they told me that she can’t do that because she has already taken a minimum required distribution this year. My mom doesn’t need the money and would like to avoid paying taxes on it. Is there anything that she can do?
M.R.D.

Dear M.R.D.:
I have some good news and some not-so-good news for you. The first deals with whether your mom has to take another distribution this year. Unfortunately, she does. What the law says is that when you turn 70½, you must take a minimum required distribution. The one exception is the very first year. Technically, the year you turn 70½, you do not have to take a distribution; rather, you can delay that until the next year. As long as she takes that distribution before April 1st of the next year, which she did, she is in good shape. The downside, however, is that distribution is really for the previous year, the year she turned 70½. Thus, the bank is accurate that she also has to take a distribution for this year. That is why the year people turn 70½, many people take the distribution even though they’re not required to; they do it in order to avoid having to take two distributions in the same year.

With regard to transferring the money to a charity, the bank’s answer was not accurate. The fact that she had already taken the distribution doesn’t affect whether she can transfer her minimum required distribution to a charity. The distribution she previously took was for 2017. The money you want to transfer is for 2018, so there should be no problem. She will probably have to talk to a supervisor at the bank. If the bank gives her a hard time –switch banks.

My philosophy in dealing with banks is if they don’t work for you -you should consider a different bank. Like everything else in our society, there is competition and you should never hesitate to make changes to best suit your needs.

For those who are generous in nature, this is the time to start thinking about making charitable contributions. One tip is that if you are thinking of making a charitable contribution, and you are itemizing your deductions you may wish to donate appreciated securities. By donating appreciated securities you could have a double tax benefit. Not only can you deduct the full fair market value as a charitable contribution on your tax return, but you can also avoid the tax that you would normally have to pay on the gain. As an example, if you bought a stock for two dollars a share and it’s now worth $10 a share and you donate 100 shares, you’ll receive a tax deduction of $1,000. If you had sold the stock you would have had a substantial capital gain to pay. However, by donating the security you are avoiding that tax.

Last word about charities and that is if you are going to donate appreciated securities or donate your required minimum distribution, don’t wait until the last second as IRA custodians get busy and it is important that the transaction get completed before year-end. Therefore, now is the time to complete these types of transactions.

Good luck!

Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com