Qualified Charitable Distributions

Submitted by ShipsnGiggles on Tue, 2013-01-29 14:23

Good Morning

I am looking for gudiance (confirmation) with the following fact pattern

T-IRA account owner will attain age 70.5 May 2013
RMD is approximately $20k
She wants to take $100,000 (of which the $20k will satisfy her 2013 RMD) from her IRA in the form of a QCD

Questions:
Account owner must reach 70.5 (i.e. May 2013) prior to taking her 2013 RMD to qualify for the QCD? My understanding is the account owner must be 70.5 to qualify for a QCD.
Will delaying the first RMD until April 1 2014 elimate the QCD? Congress reinstated for 2013 only?

Thank you
Brian



Submitted by Alan - IRA critic on Tue, 2013-01-29 16:45

  • Yes, account owner must reach 70.5 to the day before making the QCD, and should take no other distributions before that date or the earlier distribution will be taxable. Congress extended the QCD through 12/31/2013 only, setting us up for another year in 2014 when the QCD status will be questionable probably till year end 2014.
  • Not taking any distributions until after 2013 will delay the first RMD and result in uncertainty about 2014 QCDs. And there would be two RMDs due in 2014 amounting to around 40k. It appears she should at least make a 20k QCD in 2013 after reaching 70.5, and there will be no taxable IRA income in 2013. Then she can probably plan on waiting in 2014 to see what the outcome is for the QCD in that year.

Submitted by Andrew Glassberg on Sat, 2013-11-09 22:59

 Alan-iracritic.  Are you sure about your advice about the date on which QCD’s can be made?  Since RMD’s can be taken anytime during the year one turns 70-1/2, why do you think there’s a more stringent restriction for the date on which QCD’s can be made?Do you have any citations to the code or to court decisions about this?

Submitted by Alan - IRA critic on Sun, 2013-11-10 00:00

The date of which QCDs can be made varies from year to year because of the cycle of expiring provisions and Congress’ habit of extending the QCD at the end of the applicable year. This happened last year when Congress extended 2012 QCDs so late in the year that they allowed QCDs to be taken for 2012 as late as 1/1/2013. At the same time the QCD was extended to the end of 2013 for 2013. So if you are asking about a 2013 QCD, the situation is more straightforward. You have until 12/31/2013 to make a 2013 QCD, but since the first distribution in an RMD year is deemed to apply to the RMD, if you want the QCD to apply to your RMD, you must do the QCD before other distributions, but still after you actually reach 70.5. Of course, you can do a QCD that does not cover your RMD and your RMD can be more or less than your QCD, so there are alot of combinations possible. If this does not answer your question, please advise.

Submitted by Eddie Ngo on Fri, 2013-11-15 05:17

Individual has a 401k and is over 70.5 and still working. He took his RMD from the 401k for 2013. He would like to roll over $100,000 from his 401k to an IRA.1. Since he calculated his RMD on the 12/31/2012 balance in his 401k, I feel that he does not have to do an rmd on the $100,000 IRA that came from the 401k plan for 2013. Is this correct?2. He now wants to give a charity $50,000 from the IRA, which will not impact his income for 2013. Do you see any problems thus far?3. The IRA trustee tells me that they will 1099 the client even though the check goes direct to the charity. How is this handled on his tax return if he can not deduct it as a charitble contribution.

Submitted by Alan - IRA critic on Fri, 2013-11-15 16:19

  • You are correct that the IRA does not have a 2013 RMD on the balance rolled over in 2013 since IRA RMDs are based on the prior year end value.  If still working, why did he take a plan RMD. ie is he a 5% owner or does the plan require ALL employees to take RMDs at 70.5?
  • He can do a QCD from the IRA this year. but it will not apply to his IRA RMD unless he had a TIRA balance before the 401k rollover. A QCD is reported on his tax return much like a rollover. He would report the QCD amount on line 15a and show nothing on 15b, with “QCD” shown on the line next to 15b. The QCD will therefore not be included in his AGI and because of that he cannot itemize it on Sch A either.

Submitted by Eddie Ngo on Sun, 2013-11-17 06:07

Yes the client is a 100% owner.Thank you for your feed back.

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