Tax tips are rare here at ITA as I am no tax expert. However, I thought I would share an idea that some of you may already doing, but other readers will find useful.
The motivation for saving taxes arose due to the new tax code that in general penalizes states with progressive tax codes. Under the new tax laws it is not all that difficult to bump up against the upper limit of taxable contributions as well as other options that were once deductible on the federal return. Running into this situation in 2018 I began to investigate other ways to make charitable contributions other than writing checks on a standard checking account.
Since I, along with numerous other portfolio holders, hold accounts at TDAmeritrade, I contacted them to see if it is possible to make contributions from a tax deferred account. The quick answer is – Yes.
In fact it is quite simple to set up. I made a trip to a bricks and mortar TDAmeritrade location where the fellow at the desk filled out the necessary papers. One can do this online as well. I was told checks will arrive at the house in approximately two weeks. Within a two week period the checkbook arrived.
Instead of writing checks from a standard checking account, and butting up against the charitable contribution maximum, I now write charitable checks on the TDAmeritrade tax deferred account. This lowers the value of the account which in turn lowers the Required Minimum Distribution (RMD). It is also possible to ask the broker to send checks from the tax deferred account, but I prefer to write my own checks rather than contact TDA every time I want to make a charitable contribution.
When the TDA statement is available, it shows the withdrawal amount and an image of a check. By clicking on the image one sees a photograph of the check. This way you know the check has been cashed and it provides a clear record of the transfer out of the tax deferred account.
If other readers are participating in a similar plan of making charitable contributions, please let us know your experiences.