Direct Charitable Contributions from an Inherited IRA
A client of mine has a significant NON-SPOUSAL Inherited IRA and has been taking her RMDs from it. She then takes those proceeds and gives them to her church. My question is can she do a Direct Charitable Contribution and satisfy the RMD. She understands that if she does this, that she will not get the deduction, but it will lower her taxes dramatically if she doesnt have to include the RMD in her taxable income.
Permalink Submitted by Jose Morales on Thu, 2010-09-23 15:23
As of today, there is no qualified charitible distribution that would allow an individual taking an RMD to avoid reporting the distribution as income. There is a very small chance that this can change by year end, but it is highly unlikely at this point.
Permalink Submitted by Alan Spross on Thu, 2010-09-23 20:13
There is still a decent chance of the extenders bill passing before year end, but in many cases people will already have taken their RMD by then.
Note that IF the QCD is extended using the same rules as those that expired in 2009, an inherited IRA CAN be used for the QCD, however the beneficiary must still have reached age 70.5 when the QCD is made. Of course, non spousal inherited IRAs require RMDs starting in the year after owner’s death and many of these beneficiaries are much younger than 70.5.
Permalink Submitted by tomd37 on Thu, 2010-09-23 21:34
I just called Vanguard Group to see if I cold get a copy of the form to request a QCD to be used in the event the law changes late this year. I was told that because QCDs are not currently allowed, they would not send the form out. If the law changes later in the year, I should call them and they will email the form.
If the law happens to change very late in the year, as some tax laws have done in the past couple of years, I am only hoping that they will be able to respond in a timely manner. They could be hit hard with requests. For them a Medallion Signature is required on the form.
Tom D.
Permalink Submitted by Alan Spross on Thu, 2010-09-23 21:50
Good point. Passing retroactive tax legislation this late in the year in fated to result in problems of execution and loss of tax planning opportunities. You couldn’t run a private business like this and survive.
I believe that if you located a custodian that would process a direct transfer to a charity at this time AND the QCD was extended for 2010, the provision would be retroactive to 1/1 and all would be OK. But if you did the transfer and the QCD did not materialize, you would just have to report the IRA distribution as taxable and credited against your RMD amount, and then itemize the contribution to the extent you could. It would be the same as just taking a distribution from your IRA which could be more, equal, or less than your RMD and then donating it, as might have been done prior to the days of the QCD.
But if you take any distribution now, it is technically assigned first to your RMD, so you could not even roll it back into the IRA within 60 days if they passed the QCD during that period. So if you want to keep all your options open, it is best just to wait until December.
IRA custodians are not going to assume the risks of guessing what Congress will do. No matter how rational their guess, if it went wrong, they would be responsible for the fallout including unanticipated problems.