Charitable RMD Contributions Under Tax Ext.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010…
Will extend charitable giving of RMDs directly to the charity for 2010 and 2011 – correct?
But, what in the world does it mean when it says “The bill allows individuals to make charitable transfers during Jan. of 2011 and treat them as if made during 2010”?
Does that imply you could wait until Jan 2011 to take your 2010 RMD as long as you give it to charity?
Permalink Submitted by Alan Spross on Thu, 2010-12-16 04:55
Probably, but I need to review the exact wording in order to determine the extent of the retroactive provisions. One key would be allowing taxpayers to roll back earlier RMD distributions so that they can apply a January QCD to their 2010 RMD. I don’t think taxpayers should be all that happy that Congressional guilt is the reason for all this added flexibility since Congress can’t seem to execute their role of making tax legislation in a business like manner. Most taxpayers are going to get crossed up by these late and retroactive provisions, not to mention that charities will be losing out on millions of dollars they would have received if the QCD had been extended early in the year.
Will try to read the provisions and post back on the various issues.
Permalink Submitted by Scott Barbee on Fri, 2010-12-17 16:45
I’m looking at this too, Alan. The text of the provision is slim on detail, as you might expect:
1 (b) EFFECTIVE DATE; SPECIAL RULE.—
2 (1) EFFECTIVE DATE.—The amendment made by
3 this section shall apply to distributions made in tax4
able years beginning after December 31, 2009.
5 (2) SPECIAL RULE.—For purposes of subsections
6 (a)(6), (b)(3), and (d)(8) of section 408 of the Inter7
nal Revenue Code of 1986, at the election of the tax8
payer (at such time and in such manner as pre9
scribed by the Secretary of the Treasury) any quali10
fied charitable distribution made after December 31,
11 2010, and before February 1, 2011, shall be deemed
12 to have been made on December 31, 2010.
I know it’s dangerous to assume anything related to tax legislation, but I would hope there was legislative intent to give reprieve at least to those who have executed RMDs in the last 60 days and allow them to roll those distributions over so they could instead execute a QCD for the RMD.
Have you uncovered anything else at this point?
Permalink Submitted by Alan Spross on Fri, 2010-12-17 18:17
About all the text indicates is that the January, 2011 QCD distribution is treated as if it was done in 2010 for purposes of RMD compliance. More thoughts here:
1) IRA custodians are going to have to identify Jan, 2011 QCD transfers between 2010 transfers to be reported on a 2010 1099R and regular 2011 QCDs which would NOT be so reported. Hope the IRS is thinking about notifying custodians as such and custodian processing platforms will support this.
2) The only provisions for rolling RMDs back to the IRA were for 2009 RMDs that were taken out prior to the waiver. There has been no such option for RMDs taken prior to a QCD. This is one of the basic requirements in planning for a QCD that no one ever seems to state in their myriad articles on QCDs. The first distribution in an RMD year is always deemed to apply to the RMD and cannot be rolled over.
3) In both 2008 and 2010, Congress has acted late in the year and allowed QCDs retroactive to January 1 of those years. But what about all those taxpayers subject to RMDs that took their RMD out before the QCD? They can still make the QCD, but the ability to apply it to their RMD has been lost. They cannot roll those earlier RMDs back. This problem is further aggravated by Congress enacting late year legislation regarding QCDs in 2 or the last 3 years. For those taxpayers who gave up on the QCD and took out their RMD already, their RMDs will still be taxable, even though the QCD will not be included in income.
Permalink Submitted by David Barsan on Fri, 2010-12-17 21:26
So, just to be clear on this….the bill that Obama signed today (12/17) will allow my clients to take their RMDs directly to charities as they had been able to do in previous years?? Want to be absolutely positive on this.
Thanks for your responses.
Permalink Submitted by Alan Spross on Fri, 2010-12-17 22:12
Correct, as long as they have not taken any distributions yet this year. And no sense in waiting until January and getting caught up in the confusion that will create.
A client who is at least 70.5 by the date of the transfer and who has not yet taken any distributions in 2010, can figure their 2010 RMD and have that amount transferred directly to a qualified charity. It will be reported on a 1099R for 2010, but will be reported on their 1040 as a rollover with -0- taxable income. And their 2010 RMD will be satisfied. Of course, they cannot also deduct the contribution on Sch A.