QCD Prior to Age 70 & 1/2

Submitted by William Starnes on Thu, 2019-10-17 12:25

It seems crazy to me that you must wait until age 70 & 1/2 to perform the QCD when QCD’s are meant for RMD which occcur in the year in which you turn 70 & 1/2. I have a client that did this prior to the 70 & 1/2 date. Is there a way to undo this? Can they just ask for forgiveness from the IRS and proceed with filing by pulling the QCD out of the taxable IRA distribution?

Thanks



Submitted by Alan - IRA critic on Thu, 2019-10-17 15:55

  • I am not aware of any IRS PLRs allowing such a distribution to be treated as a QCD. Applying for a PLR would likely be an expensive waste of money (cost near 20k) unless there was some unique set of circumstances other than simply not being aware of this requirement.  Since QCDs were authorized in 2006, all IRS guidance has clearly stated that age 70.5 must be reached before a distribution can be treated as a QCD. Of course, the amount of this intended QCD does apply to the RMD. If still within 60 days of receipt of the distribution and client has OTHER IRA accounts, please advise.
  • That said, it would have been nice if Congress was consistent with the RMD rules, which apply to any distribution taken in the CY of turning 70.5. This would have eliminated all the timing planning necessary to incorporate a QCD into the first RMD year. This year already has the sometimes confusing issue of the required beginning date being in the following year.

Submitted by William Starnes on Thu, 2019-10-17 19:34

Thank you for your reply.  I am not sure what you mean by “If still within 60 days of receipt of the distribution and client has OTHER IRA accounts, please advise.”  Is there a tecnhique such as a “rollover” to undo this?

Submitted by Alan - IRA critic on Thu, 2019-10-17 20:20

Yes, there is. However, after rethinking this, even if the client had a multi account IRA and could roll back some of the distribution already made, he cannot recover any of the amount the charity already has in return for receiving a QCD  once reaching 70.5 because there would then be a “quid pro quo” that would disqualify the actual QCD. So the charity would have to retain the amount they already have plus any  additional QCD, and this is probably more than client intended to donate.  This limits the actual numbers where a rollover would work to an extremely unlikely fact pattern. But if you have actual numbers (prior year balance of each IRA account, amount already distributed to client or charity) and if distribution was in the last 60 days, could explore it further.

Submitted by William Starnes on Fri, 2019-10-18 14:08

One IRA with a 2019 RMD of $26,715. QCD done just prior to age 70& 1/2 in the amount of $6,000. Net RMD of $20,715).  All done within the last 30 days.

Submitted by Alan - IRA critic on Fri, 2019-10-18 14:45

With just a single IRA account, a rollover is limited to amounts in excess of the RMD. The info posted does not suggest that more than 26, 715 was distributed. If the entire RMD was distributed including the 6000 that cannot be treated as a QCD, the 6000 can only be treated as a taxable distribution with a chance of itemizing that 6000. However, if the additional 20,715 still remains to be distributed, client could wait until 70.5 and do a valid QCD for additional amounts if desired. Client would still have the potential to itemize the 6000, while reporting a QCD for IRA donations made after 70.5.  There is no way to characterize any of the 6000 to a QCD.

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