Imagining the size of Santa Claus’ retirement account balance!
Depending on where you come from, he has been working since the fourth century, when folks knew him as Nicholas, a bishop in town in what is now modern-day Turkey. While he only really works one night per year (the elves build the toys while he samples the cookies), it is third shift, and he has been doing it for some 1600 years. Plus, it is all holiday pay! With that seniority, any kind of representation from Teamsters (he is a delivery worker), and disciplined investing, he should be sitting on a sweet nest egg.
Unfortunately, once you reach 73 years old, retirement plan holders must take required minimum distributions (RMD) from their retirement accounts. Each retiree must divide their retirement account balance by a withdrawal factor from a life expectancy table. The resulting amount must be withdrawn so that Uncle Sam can finally get his cut. Investor.gov has a required minimum distribution calculator from which Santa can calculate his RMD.
If only Santa had saved more with the Roth tax treatment, he could have avoided these RMDs. But Santa has been saving since long before Roth contributions were available. So, his balance is mostly traditional/pretax, and subject to RMDs.
The good news for Santa is that as long as his money is in the 401(k) at his employer, he can wait to take RMDs while he is still employed. But what happens when he finally retires? Enter the IRS, demanding their cut.
If only Santa Claus knew about qualified charitable distributions (QCD). In an effort to get on the “nice” list, this information is offered to Santa, in hopes of finding that that long desired Lego Millennium Falcon under the Christmas tree this year.
Santa is a giving sort. He regularly gives to his favorite charities – the Salvation Army (he is a bell ringer), Toys for Tots, and operation Christmas Child. Since he already gives to these very worthwhile causes, he could save a lot of money in taxes if he chose to give using a qualified charitable distribution. The charitable distribution allows you to contribute directly from your IRA to a qualified charity. These distributions, while not taxable, can satisfy your part or all, or part of, your required minimum distribution for the year. Santa can spread holiday cheer while reducing his own tax burden come April 15th.
Here are the rules:
- You must be 70.5 years old.
- You may contribute up to $108,000 (single) or $216,000 married filing jointly. (Yes, that may be more than your required minimum distribution.)
- It must be a direct transfer from your IRA to a qualified (501(c)(3)) charity. (Only IRAs, no 401(k)s)
Now, at the risk of landing on the “naughty” list, remember that (cover your ears kids), “There is no Santa!” But you too will one day find yourself forced to take required minimum distributions. You too can avoid required minimum distributions by simply doing the charitable giving you are already doing. Just make sure you follow the rules.
And a merry Christmas to all and to all a good night!
Ho, Ho, Ho!
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