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ANDREW CARNEGIE emigrated from Scotland as a boy, began working at a young age in a telegraph office, and eventually started Carnegie Steel. When J.P. Morgan bought the company, Carnegie found himself with a lot of time on his hands—and a lot of money.
Obviously, he was wealthy, with homes in both the U.S. and Scotland. But it’s what he did with his money that always intrigued me: He gave it away. Instead of building monuments to himself, he started public libraries, universities and music halls to benefit others.
Carnegie wasn’t just intelligent. He also had street smarts. According to Dale Carnegie—no relation of Andrew—he was a master of human relations. The combination allowed him to advance in jobs that he held, plus make the necessary connections in business to succeed. I always believe smart people will figure it out, whatever “it” is. Andrew Carnegie was no exception.
I’d like to think I am one of those smart guys, but I’m not. My approach is to avoid costly mistakes rather than make brilliant financial moves.
In 2024, I’ll turn age 73—the golden age when required minimum distributions (RMDs) must begin. I’ve been blessed, such that I haven’t so far had to withdraw money from my IRA to live on. But with RMDs, withdrawals will indeed begin.
I could make the required withdrawal, pay the taxes and invest the balance in my regular taxable account. This would increase my taxable income for 2024, which—in turn—would increase how much I pay in Medicare premiums.
Inspired by Andrew Carnegie’s example, I’m thinking of sidestepping taxes on my RMD by making a qualified charitable distribution (QCD). This would involve notifying my IRA provider and asking the firm to cut a check in the name of the charity I want to support. I’d then need to mail the check myself.
The QCD limit in 2024 is $105,000. If your RMD is less than that amount, you could potentially donate your entire RMD to charity and avoid all income tax on the withdrawal. Another advantage: The withdrawal won’t impact the Medicare premium you pay. Any downsides? You can’t list the donation on your tax return as an itemized deduction.
I regularly donate 10% of my income to our church. In 2024, I plan to use my QCD to pay what I’d normally pay with after-tax dollars. I previously didn’t get any tax benefit for donating to the church, because I don’t itemize deductions on my tax return, but now I’ll get the tax benefit offered by QCDs.
Having enough for your needs and wants puts you in the position of having to decide what to do with the excess. That’s the decision that RMDs are forcing me to make. My plan for 2024: I’m going to imitate Andrew Carnegie and see if giving to charity will make me happy.
A better solution for some investors is to do an annual conversion to Roth before age 73 and what I have been doing.
But, my calculations show it will not be enough to stay at the lowest Medicare premium for many years. Ho well, I’ll take it.
Andrew Carnegie shouldn’t be admired. After the Homestead strike he slashed wages across the board, implemented a 12-hour workday and cut hundreds of jobs in the years to come.
Carnegie was a sleazy scumbag who got money that was rightfully his workers.
So often this happened in days gone. Organized labor is an attempt to even the odds so the workers get fair treatment. I’ve worked in unionized labor over 45 years and am happy I did!
One thing to note is that QCDs are only available from IRAs, not from 401(k)s or 403(b)s. The simple solution: rollover the employer plan to a traditional IRA and then make the QCD from the IRA. The rollover is tax free if it is direct sponsor-to-sponsor.
QCDs are possible from both traditional and Roth IRAs, but I can’t think of any advantage of doing one from a Roth.
Insightful. Makes so much more sense to give the money to a charity that will deploy the capital to do good in a meaningful purposeful way. It’s not that taxes are bad but they sure are not aligned with one’s desired choices on where they end up getting spent…
You can cut out the middleman, set up checkwriting in your IRA and write the check yourself directly to the charity. Be certain the charity understands that it must issue a receipt containing the magic phrase, “No goods or services…” This is essential!
Best to do the QCD early in the tax year to give the entity time to issue the receipt in that tax year.
Keep good records.
Good plan. I do the same thing. Fidelity prepares the check to our charity and mails to me for distribution. Works well and avoids the standard deduction. Keep in mind you must make a QCD entry on the 1040 to report the QCD.
We also give a portion of the RMD to our children
Nice article David. I’m sure you checked with your IRA provider, but for others considering QCDs, know that some will send the QCD amount directly to your chosen recipient for you, without the need for handling a paper check. Also, you can use QCDs as early as age 70 1/2; no need to wait for RMD age.