Striking the Right Balance When Doing Roth Conversions and QCD’s

Submitted by Mike Hunt on Sat, 2022-09-10 20:12

Using a program to model retirement finances. I include starting QCD’s at age 72 for myself, then adding in spouse QCD’s when she turns 72. All good and all show as valid QCD’s. The problem becomes….when I try and also do any Roth conversions, they appear to change many of my QCD’s into plain old charitable contributions (no longer offsetting RMD’s). I still want the tax benenfit of doing QCD’s, but also would like to convert some portion of my TIRA to a Roth. Is their a trick to balancing one (roth conversion) so that it doesn’t cancel out the QCD tax benefit?



Submitted by Alan - IRA critic on Sat, 2022-09-10 20:38

  • There must be some error in the program you are using. Possibly it relates to the order you are entering these transactions. You must complete the QCDs before completing your RMD, and the QCD will count toward your RMD. The conversion must be done last, after the RMD has been completed. The QCD will then offset the RMD income up to the lesser of the QCD or the RMD. The reason that the conversion must be done last is because the first distribution in an RMD year is deemed to apply to the RMD, and a conversion is a rollover but you cannot roll over an RMD. 
  • Note that while RMDs start at 72, you can do a QCD once you hit age 70.5 to the day. Doing a QCD prior to the start of RMDs will not reduce your taxable income in the QCD year, but will reduce your IRA balance without paying taxes, and therefore will reduce future RMDs once they begin. 

Submitted by David Mertz on Sun, 2022-09-11 03:23

  • Is there any basis in nondeductible traditional IRA contributions that you are entering after entering the QCDs?  QCDs can only come from the taxable portion of your IRAs with any additional amounts (from basis) transferred from your IRAs to charity being plain old charitable contributions.  For this to be the issue, though, it seems that you would have to have an extremely large proportion of basis in your IRAs to be able to more than exhaust the taxable portion of your IRAs with QCDs.
  • Also be aware that if you make deductible traditional IRA contributions for the year you reach age 70½ and after, amounts transferred to charity can’t be treated as QCDs until an amount equal to the total of all such contributions has first been transferred to charity as plain old charitable contributions.  (Seems unlikely, though, that the program would be taking this into account.)

Submitted by Mike Hunt on Sun, 2022-09-11 18:57

No after-tax basis in the TIRA’s. I’m trying to identify the optimal time for us to reduce our respective TIRA balances before RMD’s start. Our window seems to be getting tight. I’m 65 next year – will retire in Feb., so my earned income will go to almost zero next year. Spouse working through 2024 (she’ll be 58), then retire. So income from employment will cease YE 2024. BUT, we also get annual payments from a deferred salary plan through 2031 (much less than employment but still income). My RMD’s start in 2030. So my conclusion is that our optimal years to convert would be 2025-2029 (5 years). And I don’t want to convert it all because I want a sizeable portion to serve as QCD’s to offset the RMD’s. So would you agree those 5 years are our best window of opportunity to convert?

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