QCD Qualified Charitable Distribution

Submitted by Eleonora Tomasello on Wed, 2020-11-25 21:03

My client is going to do some charitable distribution from his IRA via QCD. I had heard/read somewhere that in order for the QCD to work they have to be done before you withdraw any money from the IRA. Is that true?



Submitted by Alan - IRA critic on Wed, 2020-11-25 21:40

  • Not exactly. There are no RMDs for 2020, but in any RMD distribution year, client needs to be sure the intended QCD is completed before the RMD is completed, or the QCD will not offset RMD income. The first distribution in an RMD year is deemed to apply to the RMD.
  • Using the above guidelines, if the RMD is 20k and the intended QCD is 5k, if 20k is distributed before the QCD, the QCD will not offset any RMD income. If the QCD is done first, then only 15k more will be left to complete the RMD, with 15k taxable. But it is also OK to take a 10k RMD, then do the QCD, and later finish the 5k RMD remaining. Since the QCD was completed before the RMD was completed, this is just as good as completing the QCD before taking any RMD. Because this can be confusing, to play it safe, many will say to simply complete the QCD before taking other distributions.
  • A QCD can still be done at 70.5, while RMDs now begin at 72 for owners. Before the 72 year and in 2020 at any age, there are no RMDs so the timing does not matter as there are no RMDs to offset.

Submitted by Eleonora Tomasello on Wed, 2020-11-25 21:54

To clarify for this year 2020, since there’s no RMD requirement.  If a client completes a QCD of $20K, this will show up in Form 1099-R as a distribution but not included in their income for 2020.  

Submitted by Alan - IRA critic on Wed, 2020-11-25 22:35

Yes, that is correct. There will be no taxes due if properly reported as a QCD, however any tax savings will be in the future due to reduced account balance and reduced future RMDs. There is no 2020 tax benefit. Most taxpayers opting to do QCDs at this late date would be better off the wait until January, then double up in 2021 and offset more of the 2021 RMD income with the double QCD.

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