RMD Distribution to Charity – Aggregating RMD’s
The situation: Client, age 78, had two IRA accounts as of 1/1/2011.
IRA#1 – 100% converted to a Roth, no RMD taken before conversion
IRA#2 – RMD for this account only made payable to a charity
Client has now realized he should have taken the RMD from IRA#1 prior to converting to the Roth. He now wants to take the RMD for IRA#1 from IRA#2 payable to a charity under the special rules for 2011. However, the custodian of IRA#2 will not make a second distribution payable to the charity since the first distribution covered the RMD for that account.
So…can the client take the balance of his 2011 RMD from IRA#2 made payable to him, but sign the check as payable to the charity, and still qualify for the charitable RMD rules for 2011, and not have to report the distribution as income?
Permalink Submitted by Peter Lingane on Thu, 2011-12-01 19:41
The required distribution from an IRA is based on the aggregated value of all IRAs. There is no such thing as a RMD for a specific IRA, assuming more than one IRA. THE FOLLOWING TWO SENTENCES ARE WRONG; SEE LATER POSTING – peter 12/1/2011. In the case of multiple IRAs, it is not necessary to take the required distribution IRA before converting a speciic IRA to a Roth IRA. This requirement only applies to qualified plans.
The idea of taking an additional qualified charitable distribution in lieu of the remaining RMD is a sound one. I don’t understand why the custodian is balking; after all, a participant is allowed to make a QCD is excess of the RMD. Would the second QCD distribution exceed the $100,000 limit?
The rollover strategy that you propose WILL NOT WORK. The taxable portion of the second distribution will have to be reported on the tax return and a charitable deduction claimed on Schedule A.
See my response earlier today to “RMD to a Charitable Organization” for a summary of the QCD rules.
Permalink Submitted by Dennis Prout on Thu, 2011-12-01 19:54
That was my understanding as well, but I thought I’d ask. And no, the charitable RMD amount so far is about $4,000. The remaining balance would bring it up to $5,000
Permalink Submitted by Alan Spross on Thu, 2011-12-01 20:08
Which transaction of the two was done first, the QCD or the conversion?
Permalink Submitted by Peter Lingane on Thu, 2011-12-01 20:33
Alan is correct. I confused the rollover and conversion rules. The RMD must come out of some IRA before any IRA can be converted to a Roth IRA. If as Alan suspects, the conversion preceded the QCD, the first $5,000 of the conversion was a deemed RMD for the year. Assuming the participant has no compensation, this is treated as an excess Roth contribution and the annual excise tax applies since the deadline for corrective distributions has passed. See Choate, Chapter 5.