QCD from other than Trad IRA

Submitted by Brad King on Mon, 2019-03-04 18:20

I am reviewing the PUB 590-B Qualified Charitable Distributions section. The way it reads is that the QCD is only available for the Trad. IRA. But in the February Ed Slott newsletter, QCDs are allowed from SEP, SIMPLE and Inherited IRAs. What am I not understanding in my reading of the two publications?



Submitted by Alan - IRA critic on Tue, 2019-03-05 00:07

  • I don’t see where 590 B mentions the word traditional with respect to QCD. A QCD can be done from any IRA other than an on going SEP or SIMPLE IRA. That includes a Roth IRA and inherited IRAs of any type. 
  • The term “traditional” does not appear in the tax code, The IRS introduced it in the 1998 Pub 590 to differentiate the former “IRA” from the newly established Roth IRA. Pub 590 A defines a traditional IRA as any IRA other than a SIMPLE IRA or Roth IRA.
  • Therefore, QCDs and traditional IRAs do not match up. An inherited IRA is not a different type of IRA, it is either an inherited traditional IRA, an inherited SIMPLE IRA, or an inherited Roth IRA.  Just another example of verbiage that applies differently for different purposes of the tax code, and therefore somewhat confusing.

Submitted by Brad King on Tue, 2019-03-05 00:26

thanks———

Submitted by James Magno on Wed, 2019-03-06 00:18

A Roth withdrawal can be a taxable event, but usually not.Roth IRA (if the withdrawal is not taxable) is not a QCD because The exclusion is only available to the extent that the distribution would otherwise have been includible in gross income, and § 408(d)(8)(D) provides a special rule for determining the amount that would otherwise be includible in gross income. In addition, the exclusion applies only if the contribution would otherwise qualify for a charitable contribution deduction under § 170 (without regard to the percentage limitations of § 170(b)). A distribution that is eligible for this exclusion is called a qualified charitable distribution.

Submitted by Alan - IRA critic on Wed, 2019-03-06 03:20

Good point. There are several reasons not to use a Roth for a QCD, but here are some observations.

  • Since Roth owner must be 70.5, the vast majority of Roths are qualified by then, so hold no taxable amounts. 
  • If Roth is not qualified due to the 5 year requirement, the actual earnings in the Roth cannot be determined until 12/31. If all earnings as of an earlier date were distributed as a QCD, and the Roth(s) lost money through year end, some of that donation would not have been taxable and would not be a QCD.
  • The allowed QCD amount is not reported on Form 8606, but if the donation included some Roth basis, the amount allocated to basis would have to be reported on Form 8606 and basis would be reduced. There would still be no taxes due. With a gain post donation, there would still be some gain left as of year end and no 8606 to be filed. 
  • I wonder if tax programs anticipated this possibility. 

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