Timing regular and charitable IRA distributions
Q: I recently read that in order to take a qualified charitable distribution from your IRA, you had to take it first before any other withdrawals. Is that correct? A: No, it is not necessary to take a qualified charitable distribution (QCD) as your first IRA withdrawal. However, the regulations specify that your first withdrawals are applied to meeting your required minimum distribution (RMD). So you can only make a charitable contribution using the QCD option if you have not yet satisfied your RMD for that year.
For example, assume you have to take a $5,000 RMD for the year. If you withdraw $5,000 from your IRA without making a charitable contribution, you could not then initiate a QCD for that year. If you withdraw $1,000, however, you could still contribute up to $4,000 in a QCD later in the year.
Q: I would like to wait until age 70 to initiate my Social Security benefit. My wife will be initiating her benefit before I reach 70. I am now 68. Will I be able to take a spousal benefit and still be able to initiate my benefits at age 70?
A:
No. The only way you would be eligible for the spousal-only option you describe is if you were born before Jan. 2, 1954. Because you were not, you cannot file for a spousal benefit and also apply for your work benefit later at age 70. When you do apply for a spousal benefit, Social Security will assume that you are applying also for your work benefit at that time, and you will receive whichever is greater, the spousal benefit or the benefit you are entitled to based on your work record up to then.
Q: I turned 72 in 2022. I intended to wait until April 1, 2023 for my first RMD, and later in the year take my second RMD. I understand that, based on the omnibus bill that was recently passed, RMDs can be postponed now to age 73. Does that mean I can take my first RMD by April 1, 2023 and postpone my next RMD until 2024?
A: No. Because you reached 72 in 2022, you are required to take RMDs based on the rules in effect in 2022. So you do have to take two RMDs in 2023, as you had planned to do, one by April 1, 2023 and the second by year-end 2023. Then, in 2024, you can make one RMD by year-end, based on your balance at the end of 2023 and your age in 2023.
Q: Do you have any recommendations for investing in safe, conservative investments now that interest rates have increased?
A:
If you are looking to invest for the short term, and are looking for a safe investment with reasonable returns, you can now receive over 4% from money-market funds from the financial institution handling your investments. For example, I recently invested in Vanguard’s federal money-market fund, which returns over 4%. Many financial institutions are now offering similar returns for money-market funds. They are safe investments, and you don’t have to keep these funds invested for a long-period of time if interest rates fall significantly, which is not likely in the near future.