By Andy Barthel

My earliest memory as a child is learning to write my ABCs in Kindergarten at Peace Lutheran School in Livonia, Mich. Thanks to my beloved teacher Mrs. Olson, I was able to tackle those letters with efficiency. Little did I know, ABCs would show up throughout my life.

We come across so many ABCs in the form of acronyms. Our culture of slang allows us to speed up our communication in talking, texting, and social media. Think about the acronyms you have probably utilized: RSVP, ASAP, PIN, FAQ, ETA, and EOD. Couple that with the newer ones: LOL, IMHO, JLMK, and TTYL. Is your head spinning already?

In retirement, we also have to navigate many acronyms: COLA, DAF, CGA, IRA, QCD, and RMD to name several.

Let’s focus on QCD and RMD
A QCD is a Qualified Charitable Distribution. A RMD is a Required Minimum Distribution. Both can play important roles in your retirement and charitable legacy.

RMD is the minimum required mandatory amount you must withdraw from tax-deferred retirement accounts. The IRS stipulates the age at which your RMD must start.

The IRS calculates your RMD based on the account balance at the end of the previous year and life expectancy table. Once you have achieved RMD age, you must withdraw annually the minimum calculated amount from your designated tax-deferred account. This must be completed by the end of the calendar year, each year after your RMD age is reached. If you do not withdraw your RMD, you may face penalties.

A QCD allows you to make a nontaxable charitable distribution directly from the same tax-deferred account to qualified charities. You can start making QCDs once you have reached the age of 70 1⁄2, capped at $108,000 per year. A QCD is a great tax advantaged way to support your favorite qualified organization, such as your church or Worship Anew.

QCDs and RMDs can work in conjunction with each other. Once you have reached your RMD age, you can use a QCD to meet your annual RMD. This means instead of taking out your RMD as taxable income, your QCD from your tax deferred account can count toward your RMD. For those who do not intend to withdraw from their tax deferred accounts, a decision to utilize QCDs could reduce taxable income in retirement while supporting a charity.

Both QCDs and RMDs are essential tools in retirement planning. Confused? If you haven’t started planning around your RMDs and QCDs, I would urge you to meet with your financial adviser and CPA to start your game plan today.

I appreciate being taught how to write my ABCs at a young age. I know I wasn’t ready for the acronym journey life would take. Hopefully, these acronyms made you think just a little about your own personal financial plan.

TTFN (ta ta for now).

Andy Barthel is an owner/wealth adviser at Passage Wealth in Hoagland, Ind.