IRA charitable rollover
I know that the IRA charitable rollover expired at 12/31/09 and has not yet been extended. Does it make sense to put off taking an RMD until year end in case this provision is extended to 12/31/10? If someone takes the RMD and the charitable rollover is extended, is it possible to redeposit the RMD w/in 60 days and make the charitable contribution?
Permalink Submitted by Alan Spross on Sat, 2010-05-15 03:45
Yes, it does make sense to wait for the extension, although that may require waiting until December. It would take more than an extension of the expired provision to allow a rollover of prior RMD distributions, which by definition are not eligible rollover distributions. The first distribution in an RMD year is deemed to apply to the RMD.
An extenders bill drafted late last year includes the extension of the QCD, and it is still expected that this will pass. Of course, almost all pundits also agreed that there was no way the estate tax would disappear in 2010!
Tax planning is quite a challenge in normal circumstances, but in recent years it has become even tougher since Congress often acts very late in the current calendar year with retroactive tax changes. Perhaps the anti incumbent hostility that is brewing will stimulate some action prior to election day this year.
Permalink Submitted by Talia Pierluissi on Sat, 2010-05-15 15:42
Alan,
Thanks for your reply. So to clarify, you’re saying that even if the QCD is extended, that does not mean that the QCD can satisfy the RMD for this year, is that right?
Talia
Permalink Submitted by Alan Spross on Sat, 2010-05-15 20:29
The QCD can satisfy the RMD only if the RMD is not withdrawn prior to the QCD. For example, if you were not aware of the possible extension of the QCD this year and already took your RMD, you cannot roll that RMD back and make a QCD that satisfies the RMD after the extension is approved. You can still make the QCD, but the prior RMD will be taxable and the QCD will just be an additional non taxable distribution. The problem here is that many taxpayers will already have taken their RMD or part of by the time Congress gets around to extending the QCD.
This is also explained in an article by Ed in Oct 2008, when the prior QCD was extended for 2008 late in the year and many people had already taken their RMD beforehand. The following is copied from that article:
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About the only flaw in this scenario is that Bob can’t reverse required minimum distributions already taken. Suppose that when his financial adviser calls him to tell him about this provision of the new law, Bob already has withdrawn $10,000 from his IRA this year to satisfy his required minimum distribution. He can’t put that $10,000 back in and then make a $10,000 qualified charitable distribution. This prohibition applies even if Bob made his $10,000 withdrawal within the previous 60 days. A required minimum distribution can never be rolled over, so it can’t be undone.
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Permalink Submitted by Clyde Wolf on Sun, 2010-05-16 00:40
Taking the RMD early in the year, and after the QCD extension late in 2010, it would be OK to do a QCD in 2010. This would have the effect of lowering your RMD for 2011. Not a bad idea.
And perhaps, Congress will make the extension go to the end of 2011 too.
But don’t bet on that.
Permalink Submitted by Jose Morales on Mon, 2010-05-17 16:13
[quote=”[email protected]“]This would have the effect of lowering your RMD for 2011. Not a bad idea.[/quote]
It would lower your RMD for 2011 only in so much as you are lowering the year end balance, which is used to calculate the RMD. It is important to note that distributions taken in one year cannot be applied towards the RMD, dollar for dollar, in the next year.