Required Minimum Distributions (Q & A)

Jan 2016


Q         Dear Rick:

I was born July 4, 1945 which means in the first week in January I will turn 70½.  I met you a few years ago at the Observer & Eccentric Expo and you told me that in my situation it would make sense to do Roth conversions every year.  I have done that and it’s worked great.  I have the bulk of my IRA now in my Roth IRA and I paid very little in taxes on it; thank you.  I have a couple different questions regarding my minimum required distribution that I hope you can help me with.  First, I want to confirm that I do not have to take a distribution from my Roth IRA.  Second, in regard to the remaining money in my IRA, I know that I have to take a distribution this year.  I was told that at the end of 2015 they passed a new law which allows you to gift your required minimum distribution and avoid paying taxes on the money.  I want to gift my required minimum distribution this year to my grandchildren.  My question is dealing with the mechanics.  Is there a limit on how much I can gift to them, do they have to pay taxes on the money?


Thank you.



A         Dear Leo:

First, I want to say I think it’s great that you did the Roth conversion.  I believe a Roth conversion is a great tool that more and more investors ought to use.  Not only do you have the benefit of turning tax-deferred money into tax-free money, you also get greater flexibility with your money in the fact that the 70½ rules do not apply to a Roth IRA.  Therefore, in the situation at hand, you are not required to take a distribution from your Roth IRA.  You can leave that money to grow on a tax-free basis for as long as you choose.  In fact, if you end up passing away and still have money in the Roth IRA, your loved ones would not have to pay income tax on that money either.  Therefore, converting to a Roth IRA was a very good move and it gives you a great amount of flexibility into the future.


With regards to the new law unfortunately, you’ve been told wrong.  The new law does not allow you to give your required minimum distribution to an individual; rather, the new law addresses the issue of donating your required minimum distribution to a qualified charity.


For the last number of years, taxpayers who are required to take a minimum distribution from the IRA have been allowed to donate that distribution to a charity.  The problem has been that because of the dysfunction in Washington, the law that allowed this had to be renewed every year.  As a result, the law usually did not get renewed until the end of December.  What has changed is that part of the law is now permanent.  Therefore, you no longer have to wait until the end of December to see if the law would be extended, it is now permanent.  However, the law only deals with qualified charities, not gifts to individuals.   Therefore, if you decide that you do not need your required minimum distribution and you want to give that to your grandchildren, what you need to do is to take the distribution, pay the income taxes on it and then gift the money to the grandchildren.  The grandchildren would not pay any taxes on the gift.


If you decide you are going to donate your required minimum distribution to a charity, you need to work out the mechanics with your IRA custodian.  The key to the transaction is that the money must be transferred directly from the IRA custodian to the charity.  In other words, they can’t write you a check and then you turn around and give that money to the charity.  The money must go directly from the IRA custodian to the charity.


For those of you who do decide to donate your required minimum distribution to a charity, you no longer have to wait until the end of the year; you can do it whenever you choose.  However, do keep in mind that when you do this you are not entitled to a charitable contribution.  Of course, the offset is that you’re not taxed on the required minimum distribution which for many people can be a significant savings particularly for those who do not itemize their deductions.


In 2016, the first Baby Boomers will have to begin taking required minimum distributions.  Don’t wait until the last second to do it; and also, don’t forget to take a distribution.  The penalties for failure are severe.


Good luck!




Rick is a fee-only financial advisor.  His website is  If you would like Rick to respond to your questions, please email Rick at