QCD Question

Submitted by Mike Caldwell on Mon, 2020-04-20 21:30

If someone does not take any RMDs this year but does perform a QCD can the amount of the QCD be used to reduce other income such as W-2 income? Or can QCDs only be used against RMD income?



Submitted by Alan - IRA critic on Mon, 2020-04-20 21:59

A QCD this year will not reduce current year income, but it will reduce the pre tax value of the IRA account and that will reduce RMDs in future years. For a  QCD to reduce current year income, it must be part of an RMD.

Submitted by David Mertz on Mon, 2020-04-20 22:24

  • QCDs don’t ever directly reduce other income.  However, the taxable amount of Social Security income in some cases will be reduced due to the reduction in AGI resulting from treating the IRA distribution as a QCD instead of as taxable.
  • A QCD is not a deduction, it simply is not included in income to begin with.  If you want to think of it as a deduction, it’s effectively equivalent to an above-the-line deduction that just negates the taxable income that resulted from the IRA distribution.

Submitted by Dan Holl on Tue, 2020-04-21 14:34

I have clients who have taken QCD’s in 2020.They now would like to recontribute the amount they have taken from the IRA as a QCD.Can they do this?If yes how does this work? 

Submitted by Alan - IRA critic on Tue, 2020-04-21 16:14

If they do not report a QCD (which is their option to do), then they would be eligible for an itemized deduction for the donation and the distribution would be included in income, however unless they already have itemized deductions at least equal to their standard deduction, they will not be able to deduct the full value of the donation, and they would be better off just reporting the QCD as is.  

Submitted by Dan Holl on Wed, 2020-04-22 16:50

Alan,What I mean to say is a client has given money out of therre IRA to a charity via QCD.  Now they have asked me if they can put the amount that they took out for the QCD back into their IRA. They have cash and want to put the money back into their account. Can they do that. They are not going to itemize or include the distrribtion in income. Can they put the money back in thier IRA.?  

Submitted by Alan - IRA critic on Wed, 2020-04-22 18:49

  • Yes, they can do that, however if they cannot itemize it would not be wise. The charity still has the donation, but taxpayer is not itemizing it, therefore there is no tax benefit from the donation. The following example will illustrate the difference between the two options. Assume before any of this is done, the taxpayer has 10,000 in an IRA and 10,000 in his checking account.
  •  Situation 1: Taxpayer does a 10,000 QCD. They now have a 0 balance in the IRA and still have 10,000 in checking. No current tax impact.
  • Situation 2: Taxpayer does a 10,000 QCD, then decides to roll over 10,000 from checking to the IRA, erasing the QCD. Taxpayer therefore still has 10,000 in the IRA, but 0 in checking. No current tax impact.
  • As you can see, the taxpayer has taken 10,000 on which tax has already been paid and transferred it to the IRA which is pre tax, and as that 10,000 is distributed from the IRA in future RMDs, it will be taxed again. Situation 1 is preferable since the QCD has reduced the pre tax IRA balance instead of the after tax checking balance.

Submitted by Dan Holl on Wed, 2020-04-22 19:35

I thnk th client is just wnating to put some money to work that they have sitting in there checking account.That is why they are thinking about contributing the money back into the IRA. 

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