Qualified Charitable DIstributions and Inherited IRAs: TOday’s Slott Report Mailbag

Thursday, November 21, 2024

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

Hello Ed Slott Team,

We have a client with an IRA who wants to do a qualified charitable distribution (QCD) to a charity. The charity also has an account with the same custodian of the IRA and has asked that the client simply journal assets from her IRA directly to the charity’s account. Logistically, this can be done. Two questions on the topic: 1.) Is it OK to journal assets directly in this manner and still have it count as a QCD? 2.) Do QCDs need to be done in cash, or can they be done in positions?

Dustin

ANSWER:

Dustin,

If the custodian is willing to do so, then yes, they can journal the assets from the IRA to the charity’s account. As long as the custodian reports the transaction as a distribution from the IRA, then all will be well. As for question #2, QCDs do not have to be in the form of cash. If a charity is willing to accept, for example, shares of stock, then shares of stock delivered directly to the charity can qualify as a valid QCD.

QUESTION:

I inherited an IRA from my mother in 2015. I misunderstood that it was an IRA and have not been taking required minimum distributions (RMDs). In his most recent book, Ed Slott mentions that the IRS frequently waives the missed RMD penalty. Do I have to file Form 5329 for each of the years I missed taking the RMD (back to 2015)? Should I pay the penalty, or try to get it waived?

Thanks,

Leslie

ANSWER:

Leslie,

The IRS has shown that it is agreeable to waiving the 25% (previously 50%) missed RMD penalty for good cause. There is a process for requesting a waiver: 1.) Take all the past missed RMDs. 2.) Complete a Form 5329 for each year with a missed RMD. (You may need the help of a tax professional.) 3.) Submit the forms to the IRS along with a brief letter explaining what happened, that the oversight has been corrected (i.e., missed RMDs have been taken), and you have taken steps to make sure it won’t happen again. Finally, do not pay the penalty. If the IRS declines your waiver request, it will be in touch. Otherwise, you can assume your waiver request has been granted.

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