I want to move some of my IRA money to a charity. I am not yet 70 ½. Can I do this?

By Sarah Brenner and Beverly DeVeny
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This week’s Slott Report Mailbag examines required distributions and moving IRA money to a charity. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

I am 72 and still working. I don’t have to take any required distributions from my 401(k) money. I want to move some of my 401(k) money to an IRA before the end of the year. Will I have to take a required distribution from the money I move to the IRA this year?

Thanks,

Jerry

Answer:

There will be no required distribution (RMD) from any plan funds that move this year, as long as you are still working on the last day of the year. The plan funds have no RMD while they are still in the plan and the IRA RMD is calculated on the prior year-end account balance. Since the prior year-end account balance does not include the plan funds, they are not included in the IRA RMD for the year.

If you separate from service before the end of the year, the answer changes. You will have an RMD on the plan funds and the RMD is considered the first funds out of the plan. Since those funds are now in an IRA, you have an excess contribution in the IRA. You will need to check with a qualified advisor on the steps you would need to take to correctly take and report your RMD on the plan funds.

2.

I want to move some of my IRA money to a charity. I am not yet 70 ½. Can I do this?

Mary

Answer:

The only way an individual can move retirement funds to charity before age 70 ½ is to take a taxable distribution from the IRA and then make a charitable contribution. If they itemize deductions, then they can take a charitable deduction for the contribution, but that is not always a dollar for dollar deduction.

Once an individual turns 70 ½, they must actually be 70 ½, then they can use the qualified charitable distribution (QCD) strategy for making charitable contributions with IRA funds. The basic rules for a QCD are that you must be 70 ½ at the time of the transfer, funds must be directly transferred from the IRA to a qualifying charity (no donor advised funds, private foundations, or supporting organizations), the contribution must be deductible under the tax rules, a maximum of $100,000 per year qualifies for a QCD. The distribution is not included in the individual’s income for the year and they cannot take a tax deduction for the contribution. For more complete information on QCDs see § 408 (d)(8) and Notice 2007-7.