That's required minimum distribution, meaning you need to start tapping money from retirement accounts at 70.5—unless you try this.

Video Transcription

Kevin McCormally: I am Kevin McCormally of Kiplinger's, and I am here with Mary Beth Franklin, Retirement Editor of Kiplinger's Personal Finance magazine to talk about a new rule for required distributions from Individual Retirement Accounts. Mary Beth, Congress changed the law now, so that people who don't really need the money, they are forced to take out a retirement account, can give that money to charity. Can you give us an idea of what's going on? Mary Beth Franklin: Right, normally once you've turned seventy-and-a-half, you have to start taking annual distributions from your retirement accounts whether or not you need the money and you have to pay taxes. Kevin McCormally: So this what they call the RMD? Mary Beth Franklin: That's right, Required Minimum Distribution. Kevin McCormally: And what's the new rule? Mary Beth Franklin: The new rule allows you to take that Required Minimum Distribution or even more up to $100,000 directly from your IRA, give it to a charity, and not have to pay taxes on that money. Kevin McCormally: Okay, I am a little confused here because if you make a charitable contribution, you get a tax deduction, so why not take the money out. How is this better than taking the money out, and all setting it with a charitable contribution deduction? Mary Beth Franklin: Well, the fact is a lot of retirees don't itemize their deductions, and the only way you can take a tax break for your charitable contribution, is if you itemize. This allows retirees to take some of that money from their IRA, give it to their favorite charity, and get a tax break. Kevin McCormally: Okay, and what about higher income people. I understand there's a benefit for them to -- by avoiding the distribution into their income? Mary Beth Franklin: That's right. A lot of higher income retirees simply don't need the money, but are required to take a distribution every year, pay taxes on that and that will often bump up their other tax bills or make them most of the tax breaks, so they went to. Kevin McCormally: Okay, is there any trick on how you have to do this direct transfer to the charity? Mary Beth Franklin: Yes, you have to be very careful, the money has to go directly from your IRA custodian to the charity. If you take the check yourself and turn it over to the charity, you lose the tax break. Kevin McCormally: Okay. Is this a one year only deal? Mary Beth Franklin: This is 2007 only, so do it this year. Kevin McCormally: Thank you Mary Beth.