2014 QCD- Qualified Charitable Distribution

Submitted by Christopher Combs on Wed, 2014-04-30 15:23

Sir/Madam,

It’s my understanding that the QCD has not yet been reinstated for 2014. However, I was reviewing your Nov 2012 newsletter that addressed this same type of situation.

The advice at that time was:

“If your client has not yet taken his RMD and was planning on giving money to a charity anyway, consider sending the RMD amount (or the portion they wish to contribute) directly from the client’s IRA to their charity. If QCDs are not reinstated, your client will be in the same position they would have been in if they had actually received their RMD and then made a charitable contribution. There is no downside risk to doing so. On the other hand, if QCDs are reinstated, your client will be in a better position because their RMD will be satisfied through a tax-free QCD.”

Would this statement still remain valid or has something changed that would affect this recommendation?

Thank you,

Chris



Submitted by Alan - IRA critic on Wed, 2014-04-30 16:52

Chris, it would still be valid unless Congress extended the QCD without the retroactive provision. That is unlikely since all prior extensions of the QCD were retroactive. It is possible that some IRA custodians might refuse to make the check out to the charity until the extension was passed, but that would also be a small portion of custodians. While bills proposing various extensions are being marked up now, since this is an election year the best bet is that any extension would not be approved until after the election just like all prior extensions done in even numbered years.

Submitted by Christopher Combs on Thu, 2014-05-01 15:29

Alan,If Congress extends the QCD without the retroactive provision, my understanding is that the client would have to report the charitable contribution as taxable income.  However, he could also deduct the contribution off of his income.  Thus, it seems like there’s no downside risk in moving forward. Am I understanding what you’re telling me or am I missing something?Thank you,Chris

Submitted by mk foss on Thu, 2014-05-01 17:43

You’re understanding is correct. The worst that can happen is that you have a charitable deduction instead of an exclusion for the RMD transferred to a charity.

Submitted by Alan - IRA critic on Thu, 2014-05-01 19:35

Client would have a charitable deduction, but most seniors do not itemize. Client should factor in the amount of the contribution and all other potential itemized deductions to determine the net cost of the contribution with and without the QCD extension. For example, without the extension, the amount of the contribution will be included in AGI which could well increase the amount of SS benefits included in AGI, so even with a full deduction in excess of the standard deduction, the SS taxation could make quite a difference. If 85% of SS is already in AGI, then the potential impact might instead be felt in other AGI related items such as the surcharge of Medicare Part B and D premiums or phaseout of exemptions or other itemized deductions. Add in AMT variations and the analysis can be very complex.

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