Sequence of QCD from traditional IRA
This question about QCD has been asked before but I have gotten different answers supposedly from others that
claimed they have been advised correctly.
Issue: Husband age 74 in 2021 has taken traditional IRA distributions since age 70 1/2 , except in year 2020.
RMD for 2021 is $11,000.
1. His IRA bank custodian sent directly $500 for a QCD to a church in March 2021
2. He took a distribution for $9,500 in Sept 2021 to himself.
Question A. can he make another QCD before 12/31/2021 for $1,000 to a charity in 2021 for the remainder of the 2021 RMD
Question B. can he make another QCD in Nov 2021 for $600 to a charity and take $ 400 for himself later (but before 12/31/21) after the $600 QCD withdrawal?
Question C. for the future, is there a required sequence of when to make QCD to qualify for exclusion in taxable income
For example can you make a QCD at any time before or after an RMD to the owner of the IRA ?
Therefore in this case could he make a regular RMD in March 2021; a QCD in Sept 2021 and another QCD in December 2021
Question D: Are these rules of the sequence of QCD and RMD being changed for year 2022 traditional IRA withdrawals?
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-02 01:52
QA answer is Yes.
Yes, this is possible. 9900 will be taxable and 2100 will be non taxable QCDs.
All allowed QCDs are non taxable, but QCDs distributed after the total RMD is completed do not further reduce the taxable amount of the RMD. Since only 1500 of QCDs were completed before the RMD was completed, the taxable amount of the RMD was reduced to 9,500. Then another 400 was distributed to himself bringing the total taxable amount to 9900.
QCDs done after the RMD was completed will not reduce taxation of the non QCD portions of the RMD, but they will reduce the year end IRA balance and therefore reduce future year RMDs.
Since the above can be canfusing, it is often advised to do the QCDs first to make sure that all of them reduce the taxable amount of the RMD. Additional QCDs after that are not taxable, but they also DO NOT reduce the taxable portion of the RMD which has already been completed. The final 600 QCD is an example of that.
Permalink Submitted by David Mertz on Tue, 2021-11-02 05:05
I read Question B as being an alterative to Question A rather than an an add-on to Question A, resulting in $1,500 total QCDs for Question A but only $1,100 total QCDs for Question B. (Total distributions being just the $11,000 RMD in either case.)
Permalink Submitted by alberto vega on Tue, 2021-11-02 17:16
Have ther rules changed in 2022 for QCD or RMD
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-02 22:32
No, the 2022 rules will be the same as they have been with respect to the relation of QCDs and RMDs. However, the actual RMD tables will be revised to slightly reduce RMDs for most people.