Qualified Charitable Distributions
Can clients still make Qualified Charitable Distributions directly from their IRA to a charity to satisfy their RMD even if the QCD tax break does not get reinacted this tax year? What I am asking is what is the harm to go ahead and distribute directly from the custodian to the charity anyway and if it is not eligilbe for the income exclusion, just report it as income and take the deduction like normal. If the QCD tax break is reinstated, great.
Thanks in advance,
Permalink Submitted by tomd37 on Wed, 2010-11-10 22:18
Mcers,
Vanguard will not even issue the form to you in advance of the current law being changed. I asked about that in October in anticipation of a chance the law might change by year-end.
Permalink Submitted by Alan Spross on Thu, 2010-11-11 00:39
As Tom indicated, most IRA custodians will probably play it safe and refuse to issue a check to a 3rd party, charity or not. But if your custodian will do it, the 1099R will look no different than any other distribution since the taxpayer reports the QCD, not the custodian.
So, under the tax code, CAN an IRA custodian issue an IRA distribution to a 3rd party without a specific provision for doing so, such as the QCD, transfer incident to divorce, IRS lien, etc? Must be Congress thought so, because in Oct, 2008 they made the QCD for that year retroactive to 1/1/2008. No need to make it retroactive if no direct transfers could have been made.
Bottom line, if you can convince your IRA custodian to issue the check to the qualified charity, you would probably have a QCD IF Congress again makes it retroactive to 1/1/2010, and if not you have a simple taxable distribution that will be credited against your RMD, but you will have to get your deduction subject to itemizing and the annual % limits placed on such deductions. Your AGI would be much higher than if a QCD excluded the distribution from gross income, and that could negatively affect several things. But if you were going to make the contribution anyway without the QCD, it may be worth a try.
Doing tax planning with recent Congresses seems to require a crystal ball, since you cannot assume that they will act rationally, and this trend is definitely deteriorating. And you can be sure that the IRS is quite unhappy with them as well, since many of their deadlines for getting filing material out for 2010 will come and go.
Permalink Submitted by Michael Clancy on Thu, 2010-11-11 13:44
Thanks for the reply.
The client was going to make the charitable contribution anyway with his entire RMD. I feel might as well do it directly from the custodian to the charities in case congress reinstates QCD retroactively. If not, the money comes out, the client reports the distribution and claims the deduction for as much as he can.