Reporting QCD on your Income Tax Return & effect on IRA basis

Submitted by Florina Chuy on Thu, 2020-01-16 14:09

1. I have read conflicting articles regarding having your IRA custodian do a QCD directly from your traditional IRA account after age 70-½. One article says “If your trustee makes a QCD from your account, you won’t receive a 1099.” Another article says “A QCD is reported by your IRA custodian as a normal distribution on IRS Form 1099-R for non-inherited IRA.” Which is correct?

2. Please tell me if my thinking is correct regarding this:
When doing a QCD from a traditional IRA consisting of taxable and non-taxable funds, the funds going to the QCD come out of the taxable funds (provided there is enough to cover the QCD). The traditional IRA balance will be lowered by the amount of the QCD, but the IRA basis is NOT affected. Therefore, for the following year, the IRA basis becomes a greater percentage of the traditional IRA balance and this will help eventually when one is required to take RMDs, or even when doing ROTH conversions, because a lesser amount is taxable.



Submitted by Alan - IRA critic on Thu, 2020-01-16 14:34

  1. Neither. A QCD distribution is reported on a 1099R for both owned and inherited IRA accounts. There is no special code or custodian treatment, it is reported like any other distribution. The taxpayer reports the QCD on line 4 of Form 1040, enters “QCD” next to line 4b, and reduces taxable income by the amount of the QCD.
  2.  You are correct. This is accomplished by not entering any portion of the QCD on Form 8606. Form 8606 will then calculate the taxable/non taxable amounts for the RMD, conversion, or other non QCD distributions. The QCD is of course non taxable as well. The current year end value of IRAs is reduced by all distributions which results in the taxable ratio for the current year and future years coming down.

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