QCD,S

Submitted by Maria Difalco on Fri, 2017-02-17 23:11

ALAN: HERE WE GO AGAIN. Lifetime Income Benefit $11,600 covers my RMD of $6700 (rounded figures). After doing QCD,s with company for 3 years, today they tell me that QCD,s are no longer possible with LIB since these monies need to be paid directly to a ‘living entity’. Unless the rules have changed I cannot write a QCD personal check to the charity–this will only allow a regular deduction on schedule A and do nothing to keep social security in check. How can they change the rules to deny access to the QCD credit? Any suggestions how to work this out? People to contact? I am so frustrated.

I have another company with LIB–much smaller. I will be contacting them next week. Does all of the RMD need to be applied to the QCD? Do the QCD checks need to be numbered and written before the check for the balance is made out to me? In the past I requested that all checks be mailed to me and never had a problem.

Again, thank you for your assistance..

Mbd



Submitted by Alan - IRA critic on Sat, 2017-02-18 00:49

  • The QCD check must be made out to the charity, but it can be more or less than the RMD amount. QCDs can be applied against the RMD, but they do not have to be. RMD is a pre determined amount, but you determine the QCD amount so RMDs are not credited against the QCD, it is vice versa SInce the first distributions in a year are applied to the RMD per IRS rules, any QCD check you want applied against your RMD must be issued before the RMD is already satisfied.  For example, if your RMD is 6700 and you are getting monthly checks of 967, and want to do a 2,000 QCD, you can receive 4 monthly checks of 967 before the QCD check needs to be issued. Unfortuneately, combining a QCD with one of these annuities becomes a can of worms and you are pretty much limited to what the insurance company tells you. The IRS has not updated their annuity RMD Regulations to keep pace with all the newer annuity bells and whistles, but the only good news is that the IRS is not likely to penalize you for RMD compliance if you do exactly what the insurance company says.
  • Is this annuity considered annuitized?  If so, it does not have a real account value per IRS RMD Rules.
  • Is the annual LIB benefit irrevocable, in other words, for life or joint life?  If the insurance company is telling you that the RMD is less than the LIB, I have no idea if the IRS considers that correct or not. As indicated the IRS has not been specific regarding these fringe options with respect to RMDs.
  • Also, am not aware of any IRS ruling regarding company refusal to issue certain payments as QCDs. This must be an internal decision they made. Perhaps you can press them for an explanation of what changed.

 

Submitted by David Mertz on Sat, 2017-02-18 16:40

Of course to be a QCD the annuity must be an IRA annuity.  A QCD is still treated as a distribution made to you (a living entity) and reported as such on Form 1099-R, so it seems odd that the annuity company would care who the check was made out to.  Perhaps they are simply trying to avoid the overhead of preparing a check made out to the charity.

Submitted by Maria Difalco on Mon, 2017-02-20 13:30

Thanks Alan.  I intend to contact supervisor to try and get some sensible answers.   Not annuitized, not irrevocable–would restart at a lower pay-out.  This is same company that changed withholding last year to 0%, 10%, or more than 10% and tried to pass it off as IRS rule–took 4 phone calls before I had an answer–it was company policy ‘to protect client who might forget about taxes due’–give me a break!As always, thanks for your insight.MBD

Submitted by Alan - IRA critic on Mon, 2017-02-20 19:50

  • If your IRA annuity includes check writing, you CAN write your own QCD check subject to all the other QCD and RMD rules. Since the contract is not annuitized, the RMD rules call for contract benefits that increase the actuarial value of the annuity to be considered in determining the fair market value of the annuity for two purposes – for RMD purposes and for purposes of conversion to a Roth IRA. There are IRS Regs that define various methods to determine this FMV for RMD purposes, and while Roth conversion value determination is similar there are a couple of exceptions that would be expected to make the Roth conversion FMV higher than the RMD FMV.
  • For example, for RMD determination if the only additional benefit is a death benefit it will not increase the FMV for RMD purposes.
  • In your situation, you cannot calculate the RMD for this annuity, the insurance company will have to provide the amount. Once you know that amount, since the contract is not annuitized you can aggregate your RMD for the annuity IRA with other non annuitized IRAs you hold. Any QCD you do must be timed correctly if you want to make sure it offsets taxable RMD income.  Assuming that you have no non annuity IRA accounts, it means you have to know the RMD for the annuity in order to determine how your desired QCD amount relates to that and when it needs to be made in order to get the full benefit of applying to your RMD. Obviously, you would need some cooperation with the annuity provider to piece this together correctly.

Submitted by David Mertz on Tue, 2017-02-21 22:19

“This is same company that changed withholding last year to 0%, 10%, or more than 10% and tried to pass it off as IRS rule”  Actually, that *is* an IRS rule for distributions from an IRA.  Default withholding is 10%, but you have the option to have either nothing withheld or an additional amount beyond the default withheld.  However, you can work around the rule by making multiple, separate distributions (provided the company does not restrict the number or frequency of distributions), say, by making one distribution with 100% withheld for taxes and another with 0% withheld.

Add new comment

Log in or register to post comments