Charitable Donation Taken Before RMD

Submitted by Gerri Fehst on Fri, 2021-03-05 04:32

I am 73 and I want to make charitable donation with funds from my Traditional IRA. I believe I have to make the charitable donation BEFORE taking my RMD (correct?) in order to be able to make it a write off, even though I only take the standard deduction. But how does this situation jive, if at all, with the $600 charitable deduction allowed off the top for married people ($300 for single) under the law ( I think it is the Secure Act). Do you get to take money off the top of your Traditional IRA and also get to write it off as a deduction under the $600 exemption (a double tax benefit?) or is it just one — and then which one? Help, I am confused, and want to do things right for TY 2021. Thanks.



Submitted by David Mertz on Fri, 2021-03-05 12:28

Qualified Charitable Distributions (QCDs) don’t have to be done before taking an RMD.  However, if you intend for the distributions from your traditional IRAs during the year, including QCDs, to total no more than your RMD, the QCD must be done before the amount of your RMD that remains to be satisfied is less than the amount of the QCD that you intend to make.
The $100,000 limit on QCDs is entirely separate from the $300/$600 limit on charitable contributions deductible on Form 1040 line 10b.  A QCD cannot be included on line 10b; you do not get to exclude the QCD from income and separately deduct it from income.

Submitted by Gerri Fehst on Fri, 2021-03-05 17:17

If you are only giving 600, which would be the more advantageous– QCD or the 600 deduction on the 1040?

Submitted by Alan - IRA critic on Fri, 2021-03-05 20:22

The QCD would be more beneficial, although in certain cases, the 600 deduction would be equally beneficial. This 600 deduction (MFJ) for 2021 has been moved to Sec. 170 and is therefore now “below the line” as per the 2021 Consolidated Budget Act. In 2020 it was above the line and limited to 300 per the CARES Act .That means it does not reduce AGI in 2021, only taxable income. The QCD will reduce AGI from RMDs if the RMD is not completed before the QCD, as well as reducing taxable income.  Therefore, I would go with the QCD, but be sure to complete your QCD before you otherwise complete your RMD.

Submitted by Gerri Fehst on Tue, 2021-03-09 15:18

I have never understood the difference between above the line and below the line.  I know this is so basic, but could you please explain why I should care — what is the benefit –or not – to me on each of these two situations?  Thank you!

Submitted by Alan - IRA critic on Tue, 2021-03-09 15:53

An above the line deduction reduces AGI and taxable income. A below the line deduction like the standard deduction of itemized deductions reduces taxable income, but not AGI. By reducing AGI, the above the line deduction might result in less of your SS benefit being subject to tax, or save you from going over an IRMAA threshold for surcharing your Medicare premiums. Therefore, any tax threshold determined using AGI may be less likely to be exceeded by the AGI reducing above the line deduction.
As indicated previously, the special limited charitable deduction of 300 was an above the line deduction, but new legislation for 2021 makes the limit 600 for joint filers BUT treats the donation similar to an itemized deduction which is below the line. Depending on your overall tax situation, this change may or may not affect you.

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