Structuring QCD’s in retirement

Submitted by Blue_Sky on Fri, 2021-07-02 14:54

I’m attempting to model how best to set up recurring charitable contributions after I reach 70 1/2, and add in spouse. I understand they are capped, per person, at $100k / yr. At age 70 1/2 I don;t see us making any more contributions to either our TIRA’s or Roth’s. Here are my questions:

1) Since we’d no longer be making tax-deductible contributions to our TIRA’s at 70 1/2, we won’t be affected by the “QCD Tax” (as Ed refers to it) and can give $100k each, every year we wish to (and it will go towards reducing our tax bill, correct?)
2) Our QCD’s would also offset our annual IRA RMD’s, correct?
3) Lastly, we take the standard deduction for couples (do not itemize) so our QCD’s wouldn’t be included in adjusted gross income, correct?



Submitted by Alan - IRA critic on Fri, 2021-07-02 16:01

Yes, but until your RMDs start at 72, QCD distributions between 70.5 and the year you reach 72 will not reduce your current year taxable income because there is no RMD income to offset until year 72. That was the same situation in 2020 where those at all ages had no RMD, but still did QCDs. Prior to 72, while a QCD will not reduce current year taxable income, it will shrink the IRA balance and therefore somewhat reduce future RMDs.
Yes, once RMDs begin. But you need to each be sure that your QCD timing is correct since any distribution in an RMD year is first applied to the RMD, so unless you plan to make QCDs in greater amounts than your RMD, you should be sure to complete your QCDs before you complete your RMD amount.
Correct, your QCDs would not be included in your AGI, including years before RMDs begin. But you must still report the IRA Distributions on Form 1040, and enter “QCD” next to line 4b. 4b itself will be 0.
If any spouse has IRA basis from non deductible contributions previously reported on Form 8606, the QCDs will be deemed to include no basis, so they would not be reported on Form 8606. Therefore, QCDs will result in IRA basis being preserved for any non QCD RMD or other distributions. IRS basis does make reporting somewhat more complex.

Submitted by Blue_Sky on Fri, 2021-07-02 17:39

In fact, yes, we both have IRA basis from non deductible contributions over the years that I’ve been tracking in a spreadsheet, so thank you for pointing this out in relation to my original questions. However, it seems that if one is considering Roth conversions prior to age 70 1/2, things become a bit more complicated. It seems one needs to strike a balance that takes both conversions AND future QCD’s into consideration to establish a long-term plan. If you plan to give 50% of your TIRA to charities via QCD’s over a period of years starting after age 70 1/2 or even 72, then it wouldn’t make sense to convert any more than 50% of your TIRA prior to that (age 64-69), correct?

Submitted by Blue_Sky on Tue, 2021-07-06 13:29

In fact, yes, we both have IRA basis from non deductible contributions over the years that I’ve been tracking in a spreadsheet, so thank you for pointing this out in relation to my original questions. However, it seems that if one is considering Roth conversions prior to age 70 1/2, things become a bit more complicated. It seems one needs to strike a balance that takes both conversions AND future QCD’s into consideration to establish a long-term plan. If you plan to give 50% of your TIRA to charities via QCD’s over a period of years starting after age 70 1/2 or even 72, then it wouldn’t make sense to convert any more than 50% of your TIRA prior to that (age 64-69), correct?

Submitted by Alan - IRA critic on Tue, 2021-07-06 17:50

The conversion decision should factor in your entire future taxable income, not just that from the RMDs or other IRA distributions. But it does make sense to conclude that the more you distribute as QCDs, the less you would otherwise convert since QCDs up to your RMD amount reduce your taxable income. The same holds true if you didn’t do QCDs, but plan to leave most of the IRA to charity upon your death. The charity would rather receive a larger TIRA than a smaller Roth IRA due to taxes, since they do not pay taxes on the larger TIRA. QCDs in excess of your RMD or prior to RMDs beginning do not reduce current year taxable income, but do reduce your IRA balance and therefore also reduce future RMD. You are correct that you need a long term plan that correctly estimates how much you will be giving as QCDs in future years in relation to your IRA balance.

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