The Secure Act Ruins a Perfectly Good QCD

Submitted by Anthony Perrone on Wed, 2020-03-04 20:00

The SECURE Act, an owner of an Inherited IRA, who is over the age of 70 1/2 can make a Qualified Charitable Distribution from that Inherited IRA.

My initial research seems to imply that this is permitted, but it is not definitive. In an Article written by Ed Slott on January 22, 2020 entitled The Secure Act Ruins a Perfectly Good QCD stated the following:

“As a reminder, QCDs can be done by IRA owners (and inherited IRA owners) who are age 70½ or older. (The SECURE Act raised the age of RMDs to 72. However, the Act did not increase the age for QCDs – 70½ is the status quo.) IRA assets are transferred directly from an IRA to an eligible charity, and the dollar amount of the QCD is excluded from the account owner’s taxable income up to a maximum of $100,000 annually. Oftentimes, QCDs are leveraged to offset all or portion of a person’s required minimum distribution”.

I would be grateful if you could provide some clarity on this matter, and provide any authority supporting this interpretation.

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Permalink Submitted by Alan - IRA critic on Thu, 2020-03-05 00:40

The article is mostly about the anti abuse provision for those making deductible TIRA contributions at 70 or later. This is meant to prevent churning TIRA contributions and QCD distributions by getting a deduction going in and a non taxable distribution coming up (like an HSA). But this provision is overly punitive because most people already have a large TIRA balance from pre tax contributions that will come out as non taxable QCDs. Very few would be making their first IRA contributions, but there could be some. This provision will reduce QCDs dollar for dollar up to the sum of these deductible contributions.
There are options to postpone these consequences, such as married couples making the contributions to one spouse’s IRA and doing the QCDs from the other spouse’s. The non deductible contributions should probably be done for the spouse most likely to pass first, so the spouse that inherits will not have made a deductible contribution after 70. Or contribute to a Roth IRA.
I look at this situation being more about “ruining” the new deduction opportunity than ruining the QCD, since the QCD is only ruined IF you make the deductible contributions. You also might be making QCDs for many more years that you are generating earned income after 70, and if your marginal rate is lower in retirement (aided somewhat by QCDs to offset RMDs), you would probably favor a Roth contribution anyway. They are better to inherit and do not increase RMDs.