Ask Liz Weston

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Retirement Savings

Q&A: RMDs gave me permission to retire

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Dear Liz: When Roth conversions came along, they were touted as a way to avoid taxable required minimum distributions in retirement. I had built up a solid “traditional” account, and saw no reason to add to my tax bill by converting. I ignored the noise, although I did open and contribute to a Roth account in addition to my traditional IRA.

Now in my 70s, living on Social Security, RMDs and some investment income, I’m grateful I blocked the noise. In fact, I have the RMD income to thank for getting me to realize that I could afford to retire. If I’d converted, I’d probably still be working and afraid to spend my tax-free Roth. And it turns out the tax bite on the RMD isn’t all that bad.

Answer: Thanks for sharing your perspective!

Q&A: Yes, you can donate IRA money with a check–but should you?

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Dear Liz: Please have another go with respect to answering a recent question about making qualified charitable distributions from an IRA using a debit card, which is something we have also wondered about. Several of the large mutual fund companies tell their customers that checks from their IRA account going to qualifying charities will qualify as QCDs, whether the checks are written by the company to the charity or by the individual to the charity. Hence, it would seem to be functionally equivalent whether one writes a check or uses a debit card. But your answer to the reader’s question seems to suggest something else.

Answer: You’re right that my answer fell short in explaining the problem.

The original letter writer wanted to be able to use a debit card to make qualified charitable distributions from her IRA to small art organizations that accept online donations, but apparently not paper checks. Qualified charitable distributions allow people to donate money from their IRAs to charity without the money being taxed.

Since IRA custodians typically don’t issue debit cards, the letter writer would have to first have the donation amount sent to her bank account or another account that offers such a card. But this transfer would make the distribution taxable, since qualified charitable distributions must be made directly to the charity without the money passing through the IRA account holder’s hands.

Checks drawn from an IRA account and made out to the charity, either by the account holder or the IRA custodian, are considered qualified charitable distributions as long as other rules are met. For example, the donation must be from a traditional IRA, the account holder must be at least 70-½ and the annual donation limit is $108,000 in 2025.

That said, sending checks through the mail is a risky way to transfer funds. Mail theft and related check fraud are soaring. Electronic payments are a far more secure way to send money, whether you’re paying bills or charities.

If you must send checks, use gel-based pens since their ink is harder to alter and go to your local post office, rather than leaving checks in an unsecured mailbox. Monitor every check you send and report any missing checks promptly to your bank or IRA custodian so they can stop payment.

Q&A: Follow the rules for IRA donations

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Dear Liz: Hello. I’d like to use my IRA for charitable donations when I’m required to make minimum distributions. The problem I’ve encountered is that I want to use a debit card for donations. I prefer to donate to small art organizations, which are set up for online donations and definitely not paper checks. I found one brokerage that offers an IRA with a debit card but when I spoke with them, they said it can’t be used for charitable donations. I’m at a loss. Do you know of any way to make charitable donations from my IRA with a debit card? It’s 2025! Surely someone has figured this out.

Answer: You’ve missed a key component of how this particular tax break works.

Qualified charitable distributions allow people 70½ and older to donate money from their IRAs directly to charity, without the money being taxed. The donations can count toward the required minimum distributions that must otherwise begin at age 73 (or 75 for those born in 1960 and later).

Note the word “directly.” The transfers must go straight from the IRA to the charity, without passing through your hands. The IRA custodian will be the one to send the money, either through electronic transfer or check.

Q&A: Approaching retirement? Don’t count on rules of thumb

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Dear Liz: I have a few questions about my income taxes during my upcoming retirement. I would like to know if doing a Roth IRA conversion will be worth it for me since I might be in a higher tax bracket when I retire. Is there a rule of thumb in regards to doing this conversion? I’m also getting considerable income from my tax-free municipal bond and money market fund. Will that income be taxable when I retire and will it count toward how the government calculates my Medicare premiums?

Answer: Rules of thumb can be incredibly helpful in many areas of personal finance. Guidelines such as “spend less than you earn” and “pay yourself first” apply to virtually everyone. Even more specific recommendations, such as the 50/30/20 budget, can apply to many if not most situations. (The 50/30/20 budget recommends limiting “must have” expenses to 50% of after-tax income, leaving 30% for wants and 20% for savings and extra debt repayment.)

As you enter retirement, though, you’ll be making decisions that may be irreversible. It can be much harder to rebound from mistakes and you’ll have fewer years to do so. That’s why it’s important to get individualized advice from pros you can trust.

Converting a regular retirement account to a Roth IRA can make sense if you expect to be in a higher tax bracket in retirement and can pay the taxes on the conversion without raiding the account. But the conversion also can trigger higher Medicare premiums.

The same is true for municipal bond interest. Muni bond interest typically avoids income tax, but will be included in Medicare premium calculations and may cause more of your Social Security benefit to be taxable as well.

A tax pro can advise you about these issues and offer strategies to lower your lifetime tax bills.

Q&A: Inherited IRA could increase tax bill and Medicare premiums

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Dear Liz: If someone inherits my retirement account, is there any way they can avoid having their Medicare premiums increased for one year?

Answer: A large-enough retirement account could affect their Medicare premiums for up to 10 years, not just one.

Normally inheritances aren’t taxable, but retirement accounts are the exception. Withdrawals from inherited retirement accounts are usually taxable as income, and most non-spouse inheritors must drain a retirement account within 10 years. Withdrawals from inherited Roth accounts aren’t taxable, but the accounts still must be drained by the inheritor within a decade.

If the inheritor is on Medicare, taxable withdrawals could boost income enough to increase their Medicare premiums, thanks to the income-related monthly adjustment amounts (IRMAA). This surcharge starts once modified adjusted gross income exceeds certain amounts, which in 2025 is $106,000 for single filers and $212,000 for married couples filing jointly.

Anyone who inherits a retirement plan should get advice from a tax pro, but that’s particularly important when withdrawals might affect tax brackets and Medicare premiums. The pro can help determine how quickly or slowly the money should be withdrawn to maximize how much the inheritor gets to keep.

Q&A: Don’t need your RMD? Consider a QCD

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Dear Liz: When you’re writing about required minimum distributions from retirement accounts, please make sure people know about qualified charitable distributions. Those of us lucky enough not to need the money can donate it directly from an IRA to the nonprofits of our choice. That way, we don’t even have it in our income column, and there are no taxes. I am looking forward to making many qualified charitable distributions to my favorite nonprofits when I turn 73.

Answer: You don’t have to wait. Qualified charitable distributions from IRAs can start as early as age 70½. The distribution limit for 2025 is $108,000 per individual. If you’re considering this option, please familiarize with the IRS rules for such distributions and consider consulting a tax pro.