Traditional IRA contribution disallowing inherited IRA QCD?
Dear Alan et al,
I have a client who turns 72 this year. She is interested in making a $7,000 deductible Traditional IRA contribution for 2021.
She also has an inherited IRA that she is interested in gifting out of this year.
Am I correct that, if she makes the $7,000 deductible IRA contribution for 2021, it will disallow the first $7,000 coming out of her inherited IRA as a QCD in 2022? I’m not sure if inherited IRAs are considered separate from Traditional IRAs in this case.
Thanks in advance,
Chris
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-12 16:29
Good question. Sec 107(b) of the Secure Act requires reduction of QCDs for the amount of TIRA deductions starting in the year taxpayer reaches 70.5. There is no indication that QCDs from inherited IRAs are excluded from the reduction even though a contribution cannot be made to an inherited IRA. Congress apparently did not want taxpayers making deductible TIRA contributions to their own IRA while making QCDs from either their own IRA or their inherited IRA. Therefore for QCD purposes inherited IRAs are not considered separately and a QCD from an inherited IRA is subject to reduction if taxpayer makes a deductible contribution to their own IRA. Note that where spouses both have their own IRAs, they have some flexibility in making deductible contributions for one spouse and doing unreduced QCDs from the other spouse’s IRA or inherited IRA.