How to rollover 403b subject to RMDs into a TIRA for a QCD/RMD next year

Submitted by VK W on Mon, 2017-11-06 04:40

With the possibility of higher standard deductions, I (79 y.o.) am thinking about using QCDs next year as a way to get some tax credit for charitable giving, viz., through a lower AGI. I haven’t heard any discussion about Congress doing away with QCD yet. [Please comment if you heard otherwise.]

Now I don’t have a TIRA to do the QCD, but I do have two 403b accounts that are subject to RMD. I’ve been taking all of my 403b RMD out of one 403b account (call it A) while the other account (call it B) I am allowing to grow by not taking out any distributions from it. In other words, I am taking all of A’s and B’s RMD out of account A.

I am thinking about rolling B over into a TIRA. So even though I haven’t touch B at all for the past years, do I have to wait until all the RMDs (A’s and B’s) are taken out of A this year before I roll B over to a TIRA? And I do have to complete the rollover before 12/31, right? Do I need to do a direct rollover? And what would the 1099-R show? Would the RMD be listed separately from the rollover of B in the 1099-R?

After I’ve done the rollover to a TIRA presumably before 12/31 of this year, then next year I would just have A=403b and B=TIRA, which would afford two separate unmixable streams of RMDs. Conceivably I could use A’s RMD (along with SS) to fund my living expenses throughout the year, and wait until the end of next year after B had a chance to grow (I hope) before taking the QCD/RMD out of B. Is this thinking correct? And how would the 1099-R show the QCD? Am I correct to think the QCD will not be subject to both federal and state tax?

Please comment on any pitfalls I may be unknowingly falling into. Many thanks in advance.



Submitted by Alan - IRA critic on Mon, 2017-11-06 15:34

  • You are allowed to do a direct rollover of B to an IRA with only the RMD for B paid out to you before the rollover.  And under the 403b RMD aggregation rules you should also be allowed to satisfy your total RMD from A (if you wanted to) and submit evidence of that to B to allow the full value of B to be rolled over since the total RMD would have been satisfied. These are IRS rules, but coordination between 403b plans is inconsistent so I suggest you discuss your plan with the administrator of B to see if they concur. If so, you would get two 1099R forms from B, one for B’s RMD paid to you (coded 7) and another for the direct rollover (coded G).
  • You do have to complete the rollover before 12/31, and I would not wait beyond 12/1 to open the IRA with the custodian you want. You can usually have the custodian “pull” the direct rollover from the 403b. SInce all 2017 RMDs will be satisfied from your 403b plans, there will be no IRA RMDs until 2018 based on the 12/31/2017 balance. Your first QCD will be in 2018 and credited against your 2018 IRA RMD.
  • Your plan in your final paragraph is fine. IRA 1099R forms have no special coding or breakdown for QCD checks, so your IRA 1099R for 2018 will just show your total distribution. You would then report the QCD just like you would report a rollover. Line 15a would show the total distribution (Box 1 of 1099R) and line 15b would show only the taxable amount (assuming your QCD is less than your total distribution). Enter “QCD” next to 15b. Your QCD can be less than, equal to, or more than your distribution. Because the first distribution of an RMD year is deemed to be the RMD, in most cases the QCD needs to be part of the first distribution if you want the QCD to offset the taxable RMD.
  • The QCD will not be included in your AGI, and I think that all states conform with the federal treatment. By not being in your AGI, it might also lower the amount of SS included in your AGI and there are several other potential savings when comparing a QCD with a taxable distribution and then itemizing a charitable contribution. Several QCD related issues are addressed in Notice 2007-7, starting with Q 34. There are a few changes since such as the QCD being made permanent. No indications of any changes in new proposed tax legislation.

Submitted by Alan Feldstein on Fri, 2017-12-08 05:44

I want to fund a QCD with money in my 403b or 401k type of TSA.  Why are there stupid rules that only allow an ira to fund a QCD?  Those rules mean that I must first convert my TSA into an ira before I fund the QCD.  Dumb! 

Submitted by Alan - IRA critic on Fri, 2017-12-08 16:48

  • There could be any number of reasons that qualified plans were not included. Doing so would have increased the loss of tax revenue and saddled plan administrators with issuing checks to parties other than the participants, and their lobbying organization may not have wanted this option.
  • The result is if you do not have an IRA account now, but are subject to RMDs from your 403b, your RMD for the year must be completed before you can do the IRA direct rollover, and you will not have an IRA RMD until next year. If you completed the IRA rollover this year, you could still do a QCD from the IRA and it would not be taxable, but it would do nothing with respect to reducing your taxable RMD until the year after the direct rollover.

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