2012 Qualified Charitable Distribution Question
Sir/Madam,
I have a client who has a RMD of $16,361.22 this year. He has already distributed $10,000 to himself. With the remaining $6,361.22 he would like to do the following:
1. Send a total of $5,800 directly to three charities.
2. Distribute the remaining $561.22 directly to himself.
The November 2012 issue of your newsletter suggests that there is no downside risk to the client doing this. I was comfortable with this until I read this excerpt in the Wall Street Journal recently:
“For the donation to count as part of the mandatory payout, the gift must be the first dollars withdrawn from IRA.”
Is this true? Do you have any insight here? My concern is that his $5,800 gift won’t count towards his RMD because he’s already distributed $10,000 to himself thus far.
Thank you in advance.
Permalink Submitted by Alan Spross on Tue, 2012-11-27 20:03
He will be OK if the QCD is approved for 2012. The first distributions in an RMD year are deemed to apply to the RMD. Therefore, the 10,000 distribution left a remaining RMD of 6,361. If he has 5,800 transferred directly to qualified charities, here is what happens:
1) If Congress approves 2012 QCDs retroactively (like they have done in the past) – client’s taxable income after the QCD exclusion from income would be 10,561. He would report the QCD on line 15b of Form 1040.
2) If the QCD is NOT passed, his charitable transfer will be treated as if it was simply distributed to him and he then made the contributions from his taxable account. Line 15b would show the full 16,361 as taxable (assuming he has no basis on Form 8606), and he might qualify to itemize the charitable contributions on Sch A. If his itemized deductions are not limited and the contribution exceeds what he would have claimed as the standard deduction, his taxable income may be the same. However, his AGI will be higher and that could drag more SS income into his AGI and taxable income.
The Slott comment assumed that his full RMD was covered by the first distribution and therefore the QCD would be eliminated. For your client, since the distribution was only part of the RMD, only that part was eliminated from the QCD and he can use up to the amount of his RMD remaining for a QCD if Congress approves it.