Code Y Listings on QCDs
Is the sub-coding of “y” with regard to a QCD just an IRS proposed regulation? I’ve spoken with representatives at Schwab and Fidelity that have mentioned nothing has been finalized.
What are the chances the proposal becomes effective for 2025 QCDs? It seems this would be very hard to go back and apply this coding to QCDs that have taken place in 2025 so far.
Permalink Submitted by Alan - IRA critic on Mon, 2025-05-19 11:20
This code is now included in the final 1099R Inst for 2025. This will force custodians to determine the amount of checks issued to charities for those over 70.5, and for those with IRA check writing to capture and total up the amount of annual checks payable to charities.
There will be some errors in the coding as the custodians cannot know that all charities are eligible, whether the charity received the check by year end, or that the IRA owner received the written acknowledgement from the charity. Therefore, some portion of these Y coded 1099R forms will be incorrect, and the custodians are probably not happy with the extra work this will entail or the calls they will receive in late January when the 1099R forms are issued for amounts that the taxpayer deems incorrect.
It’s not clear whether the custodians were given a warning about this new coding requirement early enough to prepare for the coding requirement.
QCDs were first offered in 2006, but were temporary for several years, and that likely prevented implementation of a special distribution code at the time. Once QCDs were made permanent, many people expected a coding requirement, but it was probably resisted by the lobbyists for the IRA custodians, but the IRS likely expects the benefits of the coding to result in more accurate QCD reporting in total, despite the expected coding errors.
Permalink Submitted by AT13 on Mon, 2025-05-19 13:57
Thank you! So, from a practical standpoint, how will that impact QCDs that have already occurred in 2025? A Fidelity rep, for example, said they currently have no mechanism for specifically coding a QCD- a taxable disbursement to a checking account and a QCD both receive the standard “7” code from a traditional IRA. One would think the custodians will either have to, en masse, code all third-party checks as QCDs, or send out a memo saying, “Please make sure to contact us if you took QCDs from your IRA to ensure proper coding.”
Permalink Submitted by Alan - IRA critic on Mon, 2025-05-19 14:13
QCD checks issued prior to the custodians being able to code the QCD at the time of issue (or receipt of an IRA owner written QCD check) will probably require that the custodians re code those prior checks. The custodians bank will be able to supply the names of payees on all those checks. That said, there will probably be errors.
In another forum, it was posted that Vanguard reps were similarly not aware of any coding changes to date. The longer that distributions are coded without the Y code, the more review and recapture of data will have to be done prior to the January issue date of the 1099R forms. I doubt that IRA custodians will request the IRA owners to review the 1099R coding breakdown prior to issue, and because there will be errors, the IRS will need to issue guidance on how the taxpayer can reconcile a difference between the QCDs they distributed and the 1099R forms.
Permalink Submitted by AT13 on Mon, 2025-05-19 14:28
Ok, thank you! It seems there would be so many issues with this change, especially when custodians don’t currently have a good way to record this information or even the “y” coding. People with check writing capability may face even more hurdles, as the custodian never even processes the check.