RMD & Charitable IRA
A newer client recently informed me she had not taken her RMD’s the past 3 years. Her RMD amounts are small as is her account balance $3,500.
Her intentions have always been to donate this IRA to a charity(ies).
Question: Is there a way for her to avoid the taxes and penalties (50% combined) for not taking her RMD’s and donate her entire balance to a charity(ies) of her choice?
Everything I’ve read indicates the Charitable IRA provision expired in January 2014 and I have not heard anything indicating it will be coming back.
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2015-02-18 20:39
The QCD will probably be extended for 2014 eventually, but even so it cannot be used for delinquent RMDs, just the current year RMD. She needs to calculate the delinquent RMDs and request a distribution for that amount and then file a 5329 and 1040X for each year to request waiver of the penalty. She cannot request a waiver without having made up the delinquent RMDs. If she does this, the 50% penalty will probably be waived. Then she could have the remaining IRA balance processed as if QCDs were still valid and she would not have any taxable RMD or other taxable distribution in excess of the late RMDs. If the QCD does not get extended, then she would have to report the distribution in income but could offset that with the charitable deduction if she can itemize. If she cannot itemize, then she might wait until the QCDs are actually extended. All prior QCD extensions have been retroactive to the beginning of the tax year.
Permalink Submitted by Chris Blaszyk on Wed, 2015-02-18 21:11
Thanks Alan! For confirmation, would she request a lump sum of the 3 delinquent RMD’s combined or do so individually by tax year? Also confirming a form 5329 and amended 1040 for each tax year correct?
Permalink Submitted by David Mertz on Wed, 2015-02-18 23:17
Assuming QCDs are extended for 2015, what prevents the prior-year RMD amounts from being distributed as a 2015 QCD (provided that the total is less than $100k)? A QCD is still a distribution.
Permalink Submitted by Alan - IRA critic on Wed, 2015-02-18 23:36
chris – yes, 1040X and 5329 for each year, but delinquent RMDs could be taken as a lump sum and then broken down by year on a copy of the distribution statement and sent with each 1040X.
Permalink Submitted by Alan - IRA critic on Thu, 2015-02-19 00:46
Dmx – good question. There is nothing in Notice 2007-7 or the tax code that excludes late RMDs from the definition of a QCD. All distributions which meet the other requirements qualify as QCDs, and of course QCDs and RMDs are often mutually exclusive based on amounts and timing. Whether the application of this distribution as a QCD will jeopardize the waiver request of the 50% excise tax or not is another question.