Pre tax donations from IRA as part of RMD

Submitted by Bob Lloyd on Wed, 2013-01-02 13:32

This is about the “fiscal cliff avoidance” legislation passed last evening. Is there any chance this will permit direct contributions from a traditional IRA to count as part of the required minimum distribution?



Submitted by Alan - IRA critic on Wed, 2013-01-02 22:15

  • Yes, the legislation extended the QCD for 2012 and 2013, and includes a special transition rule that allows charitable transfers made by 1/31/2013 to apply to 2012. 
  • See p 8 of the attached summary from CCH:

http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf 

Submitted by fairira on Fri, 2013-01-04 08:53

Alan,   Thank you for the link to the CCH Tax Briefing on the American Taxpayer Relief Act.  I am confused by how to apply the 2 transition rules for IRA distributions to charities.  The second rule “permits taxpayers to treat a distribution fom the IRA to the taxpayer made in December 2012 as a charitable distribution, if transferred to charity before February 1, 2013.”   Q. 1:  As a final part of his 2012 RMD a taxpayer received a $9,000. distribution in December 2012.  If in January 2013 he writes and sends checks totalling $2,000. to several charities, these might merely qualify as 2013 tax-deductible contributions on an itemized deduction Schedule A, so what kind of January 2013 transfer to charities would enable him to reduce his 2012 taxable IRA distributions by a $2,000. “charitable distribution”?   Q. 2:  Whatever the necessary method of transfer $2,000. to the charities to qualify as 2012 transfers from his IRA, on his 2012 Form 1040 would he show the total 2012 IRA distributions to him in box 15a with $2,000. less in box 15b and “QCD”  after the “Taxable amount” and should he also add an Explanation Statement to his 2012 Form 1040?   Q. 3:  Re the first transition rule that allows taxpayers “to recharacterize distributions made in January 2013 as made on December 31, 2012,” if he instructs his IRA institution (Vanguard) to distribute from his IRA a total of $2,000. in checks to several charities in January 2013 as a partial RMD, how does he “recharacterize these distributions as made on December 31, 2012”?  I.e., on his 2012 Form 1040 does he increase the total 2012 IRA distributions to him in box 15a by $2,000. with $2,000. less in box 15b and “QCD”  after the “Taxable amount” and does he add an Explanation Statement to his Form 1040?    Q. 4:  Wouldn’t such a recharacterization of the $2,000. to “as made on 12/31/12” increase his 2012 total and taxable distributions by $2,000. and also require him to still take his full 2013 RMD since that would not seem to include in it the recharacterized $2,000. distribution that would be applied to his 2012 tax year?   Thank you very much for your help.

Submitted by Alan - IRA critic on Fri, 2013-01-04 17:15

  • 1) Taxpayer could elect to split the distribution as they please between a typical charitable distribution (Sch A) for 2013 and a QCD done by indirect rollover for 2012 that would reduce RMD taxable income. Two years ago we had a similar January provision, but it was limited to direct transfers done in January. 1040 reporting this time will probably be similar, but the 1040 filing Inst for 2012 with respect to QCDs is pending.
  • 2) While official reporting instruction is pending, I think it will conform to your description. I don’t know if an explanatory statement will be required. IRS guidance should be released fairly soon.
  • 3) Yes, this is consistent with the 2010 1040 Inst, but those Inst did not request an explanation. I imagine there were many problems from the 2010-11 confusion that will now be repeated again for 2012-13. There will be no custodian 1099R changes as usual, the taxpayers just have to manage yearly January pull back on their own and get their 1040 for both years to conform to the totals. Again, check the new 2012 1040 Inst for any changes the IRS might make. The IRS is probably seething over this growing delinquency problem from Congress.
  • 4) The 2012 15a would be higher than the 2012 1099R total, but not the 15b. The 2010 Pub 590 also included instructions for a retroactive reduction of the 2010 year end FMV for 2011 RMD calcs and I expect these adjustments will also pertain to 2012-13. The 2012 Pub 590 has not been released yet, but it will probably contain these same instructions. There also also implications for any 2012 8606 for a taxpayer will basis, since the QCD does not use basis, but a retroactive 2012 QCD will change the year end total basis % on the 2012 8606 for determining taxation of any other IRA distributions that year.
  • I would watch for the new Pub 590 and 1040 Inst for 2012 to see what the IRS may have changed from the 2010 version, but I think generally that the adjustments will be as you indicated. The indirect rollover option for Dec 2012 distributions is new but the QCD has been handled like an indirect rollover for reporting purposes all along so that should not add any new reporting requirements. I am sure that the indirect QCD will not be counted as a rollover for the one rollover rule since it is not actually being rolled over to an IRA, but to a charity.

 

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