QCD from an Inheritied IRA

Submitted by Stefan D'Angelo on Thu, 2023-11-30 21:34

I have a client who is 74 and his father passed away in 2023, the client rolled over the IRA into his own Inheiriteid IRA. The client has made yearly Traditional IRA deductible contributions totaling $14,000 since he turned 70.5. The client donated the $8,000 RMD from the inherited IRA as a QCD. The client has his own IRA and did a normal taxable distribution.

Does his $14,000 of deductible contributions into this IRA disallow the QCD that he did from his Inheiriteid IRA? Or will the QCD be treated as tax-free? If it is disallowed and taxable to him, can he use the QCD amount as an itemized deduction?

Thank you!



Submitted by Alan - IRA critic on Thu, 2023-11-30 23:37

  • The anti abuse rule appears to apply to inherited IRAs as well as owned IRAs even though a contribution cannot be made to an inherited IRA. Therefore, QCDs could not be claimed and would have to be reported as taxable income, but a deduction could be claimed if he client had enough deductions to itemize the donations. 
  • If such a deductible contribution was made for 2023, client could recharacterize it as a Roth contribution, remove the contribution, or even not claim the deduction (worst choice of the 3), in order to reduce the total 14,000 of contributions he must burn through before claiming the QCD. 
  • Client should still maintain documentation of the QCD used to offset the contributions in the event that he wants to continue to make QCDs.
  • If client is married to a spouse eligible for QCDs, the spouse could make QCDs if the spouse did not also make deductible contributions after age 70.5.
  • This anti abuse rule is overkill, hurts charities, and with a few other provisions in Secure 1.0 and 2.0 should never have been included in the legislation. I cannot imagine many taxpayers whose IRA balance is so small that any QCDs could not be funded from contributions and gains generated pre age 70.5. 

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