Computing FORM 8606 using RMD for donation to charity

Submitted by alberto vega on Sun, 2018-12-16 01:28

Husband (H) 71 and Wife (W) 66 in 2018. H’s has 5 IRA’s cumulative balances of $90,000 non-deductible
contributions (cost basis) and $700,000 market value projected as of 12/31/18, all invested in CD’s. $400,000
in market value came from, in previous years, a rollover from a 401k to a traditional IRA.
1. H wants to donate about $6,000 in 2019 to a church from his 2019 RMD. Projected income in 2019 $150,000
(all interest, dividends, capital gains(hopefully), IRA taxable distributions, taxable SS income
2. He wants to take the $6,000 donation from his lower yielding IRA CD.
3. Seems his RMD in 2019 would be about $27,400 = 700,000/25.6 (H’s factor for 2019 RMD)
4. My understanding is the $6,000 will not be reported in the sections of the tax return as a pension/IRA
distribution income line nor in itemized deduction donation expense
5. How would H show these amounts in H’s #8606 to reflect H’s new cost basis and market value
when this $6,000 would not appear at all in the tax return for 2019. Specifically how does H would adjust
his $90,000 cost basis and his $700,000 market value as of 12/31/19 (assume no earnings in 2019 for simplicity) when that $6,000 does not appear in the tax return.
6. Can this distribution for $6,000 be made with a check payable to the charity and given to H. Then H will give it to the charity.
Or the bank has to mail directly the check to the charity.
7. H informed me, the bank officer (probably customer service person untrained about IRA’s), said bank could not make
or send a check to charity for RMD. Will escalate his issue. Does it matter if check, payable to charity is given to H?
8. Can you point out the Reg or section of the code where the RMD can be sent by the bank to the charity so I can
convince the bank it can be done as described herein.

I know there are many issues but would appreciate you addressing each one



Submitted by Alan - IRA critic on Sun, 2018-12-16 02:16

  1. He can satisfy his total RMD amount in any combination from these IRA accounts. However, he must take the 6,000 QCD distribution before his other distributions exceed 21,400, or his QCD will not reduce the taxable amount of his RMD by 6,000. It is safer to just do the QCD first to avoid timing errors.
  2. This is fine, subject to the timing issues per 1) above. With CD IRAs there is also the addtional issue of avoiding CD early withdrawal penalties for RMD distributions. Some banks waive these penalties for RMDs, some don’t, and some will waive the penalty only for the RMD amount for the specific CD making the distribution. It is very possible that 6,000 is more than the RMD for the lowest paying CD.
  3. That is correct assuming he will be 72 at the end of 2019.
  4. Correct, but the full 27,400 will be reported on line 4a, “QCD” will show next to 4b with the actual taxable amount calculated on Form 8606 showing on 4b. Correct, no itemized deduction allowed.
  5. This is done by omitting the 6,000 QCD altogether from Form 8606. Only the 21,400 distribution will be reported on Form 8606 and pro rata basis will be applied to arrive at the portion of the 21,400 that is taxable. This results in no basis being applied to the QCD of 6,000 as required.
  6. Yes, most custodian will make out the check to the charity requested and mail the check to the IRA owner for delivery to the charity. He must receive written acknowledgement from the charity in the same manner as any other donation.
  7. Does not matter, probably better control if the check is given to H, so H can be sure it is delivered and receipt collected.
  8. Better to have QCD check sent to H for delivery as indicated earlier. Either this or direct to charity will work, and direct to charity is authorized in QA 44 of Notice 2007-7.
  9. Careful planning needed when working with QCDs, IRA basis, IRA CD investments with possible early withdrawal penalty and distribution timing issues.

Submitted by alberto vega on Mon, 2018-12-17 17:36

IResponse item 1 and 2.  Do not understand why $6,000 dist directly to charity has to be taken before the remaining distributions of $21,400. Could it be done $ 1,500 quarterly? I thought as  long as total distributiondoes not exceed the planned $ 27,400 the order did not matter.  Please explain Also he checked with banks and was told there will be no CD penalty for the planned withdrawals

Submitted by Alan - IRA critic on Mon, 2018-12-17 18:13

The order does not matter as long as no more than 27,400 is distributed, but it does matter if more than the RMD amount is distributed, and was not sure that total distributions might not exceed the RMD amount. The QCDs could be made quarterly, and there will have to be 4 checks anyway if there are 4 different charities. However, if the 6000 is going to a single charity, it is simpler and less error prone to do a single QCD for the total. 

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