Welcome in to this week’s very important update!

Whether you or someone you know is retired or planning for retirement, knowing how retirement accounts affect your taxes is essential for maximizing benefits and minimizing costs. A solid understanding of these rules will help you make informed decisions regarding your accounts and relay critical information to your CPA.

Required Minimum Distribution Review

An RMD is the minimum designated amount that a taxpayer must withdraw from a qualified retirement account (Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, and 403(b)s) once you reach the required beginning age. Currently, anyone who turns 73 must take their first RMD in the year they turn 73, or no later than April 1st of the following year.
RMDs are considered taxable unearned income; meaning, they are subject to federal and state income tax but not Social Security or Medicare withholding taxes. Additionally, since taking the RMD increases your adjusted gross income (AGI), you may be subject to being pushed into a higher tax bracket.

Example:

Bonnie and Clyde both turned 73 last year and are married filing jointly on their tax return. Their wages for the year totaled $140,450 for the 2025 tax year. With the senior bonus deduction of $6,000 for each of them, their total deduction is $43,500 ($6,000+ $6,000+ $31,500 Married- Filing Jointly standard deduction) = $43,500). Subtracting their total deduction from their income means they have taxable income of $96,950 ($140,450- $43,500 = $96,950). Their taxable income places them at the very top of the 12% federal tax bracket before going in the 22% bracket.

Suppose Bonnie and Clyde took an RMD of $5,000 earlier in the year. Since all income, earned and unearned, must be reported, their total income then becomes $145,450. Subtracting their $43,500 deduction, their taxable income then rises to $101,950. This means their $5,000 is taxed at the next bracket rate of 22%, resulting in $1,100 in tax ($5,000 × 22%).
 

Qualified Charitable Distributions (QCDs)

A QCD is when someone 70 ½ or older directs a distribution from a qualified traditional IRA account directly to a qualified 501(c)(3) charity. These distributions include and/ or satisfy RMDs. The real bread and butter here is that QCDs are NOT factored into taxable income or charitable contributions since the check never passes into your hands. This means that your AGI is unaffected by traditional IRA distributions, including RMDs.
This makes QCDs an extremely valuable tool for non-itemizing taxpayers that planned on making donations to qualifying charities (YMCA, church, Boys & Girls Club, etc.). By reducing your AGI for the tax year and taking your normal standard deduction (instead of itemizing), you essentially save the tax that you would have paid on the distribution or RMD.

Example:

Bonnie and Clyde learned about QCDs this past year and since they always contribute $5,000 to their local Boys & Girls Club, they are strategizing the tax benefit of a QCD. Referring back to the first example: Let’s take their income of $145,450. Now they are making a regular $5,000 contribution by written check to their local Boys & Girls Club. Under the new One, Big, Beautiful Bill Act (OBBBA), non-itemizing taxpayers can deduct up to $1,000 of charitable donations (Note: Not a QCD) per filer in 2025, so $2,000 since they’re Married Filing Jointly. That means they’re paying tax on $3,000 ($5,000- $2,000 = $3,000) at a 22% rate. Now, when they tell their financial advisor that they want to make a QCD for their $5,000 RMD, they not only satisfy their personal goodwill towards their community, but they also satisfy their RMD while effectively lowering their taxable income.

	QCD	No QCD
Total Income (w/o RMD)	140,450	140,450
Recognized RMD	–	5,000
AGI	140,450	145,450
Total Deduction	(43,500)	(43,500)
Taxable Income	96,950	101,950
Tax	11,157	12,257
Contribution Credit	–	(440)
Tax Owed	11,157	11,817

Final Tax Difference

11,817

(11,157)

660

What does this mean?

Bonnie and Clyde are essentially receiving a tax benefit of $660 ($3,000 x 22% = $660) by directing their $5,000 RMD to a qualified charity as a QCD rather than through cash or check.

Income-Related Monthly Adjustment Amount (IRMAA)

Christmas came early, and QCDs are the gift that keeps on giving.

What is IRMAA?
It is an additional charge on Medicare premiums for social security recipients that exceed certain income thresholds which could reduce your social security monthly benefits. See 2025 thresholds here.

IRMAA, RMD, and QCD Correlation:
We know that RMDs can increase your gross income, AGI, and taxable income; so, if an unexpected IRMAA charge pops up because you got pushed into one of these thresholds, you’ll be coming out pocket for that in your monthly checks. Just like how taking a QCD saved you from needless tax on your income, QCDs may be able to reduce your income to a point where you’re no longer sitting in one of those IRMAA thresholds too deeply.

Example:

Let’s bring back Bonnie and Clyde: Their 2025 income, including their $5,000 RMD, totals $145,450, which is well below the 2025 IRMAA threshold of $212,000 for Married Filing Jointly. Later in the year, Clyde earns an additional $70,000 from consulting work, bringing their total Modified- Adjusted Gross Income (MAGI) to $215,450. Since IRMAA is based on MAGI, this pushes them above the $212,000 threshold, resulting in higher Medicare Part B and Part D premiums paid out of their monthly social security benefit checks.

Bonnie and Clyde do plan to give $5,000 to their local Boys & Girls Club. So, why not just make a cash contribution to offset IRMAA? A regular charitable deduction does not reduce MAGI, meaning they would still be over the IRMAA line. Instead, by making their $5,000 gift as a QCD, their RMD is excluded from income, lowering their MAGI to $210,450. This brings them below the IRMAA threshold, completely avoiding the surcharge.

As you can see, IRS rules and regulations can certainly complicate your tax return and the amount of money you deserve to keep. We strongly recommend a tax strategy plan when retirement income starts to enter your cash flow stream of income.

As always, if you have questions or concerns about this information or any other information. Please do not hesitate to call our office.

Dan Johnson, CPA
832 E Boston St STE 15, Covington, LA 70433
(985) 893-4123
dan@danjohnsoncpa.com