deductible TIRA with ROTH conversion and QCD

Submitted by Dana Evans on Mon, 2023-04-03 18:18

Hello! Taxpayer was 71 years old in 2019. There were no TIRA contributions.
In 2020 she made a $7000 deductible TIRA but also did a $7000 ROTH conversion.
In 2021, no TIRA contributions, took a distribution of $17300 of which $7000 was used for another ROTH conversion and $10,300 used for a QCD.

With the new rules for QCD starting in 2019 for any year age 70.5 and any TIRA contribution limiting the ability to take a QCD…I have reviewed the worksheet in Pub 590 and it only referenced deductible TIRA not how a distribution affects it…

Since we took the $7000 deduction in 2020, should we reduce the 2021 QCD by $7000 allowing only $3300 QCD?
I could argue that the $7000 taxable distribution (for ROTH conversion) washes this out to allow for the full $10300 QCD in 2021.
I really do not want to file an amended 2021! Thank you for your help!



Submitted by Alan - IRA critic on Mon, 2023-04-03 19:50

  • I hope these conversions are being done after the RMD has been completed or an excess Roth contribution is being created by the conversion of an RMD. If that’s not a problem, the 2021 return could only report a 3300 QCD as you indicated, with the other 7000 being a taxable distribution and donation subject to possible itemizing. To avoid confusion, this taxpayer should be sure to make the conversion the last transaction, only after the RMD and QCD have been completed. 
  • If taxpayer is married, they might consider having one spouse make the deductible contributions and not do QCDs, and the other spouse do the QCDs and make Roth contributions if eligible since a Roth contribution is always superior to a ND contribution.

 

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