It’s Too Late To Use These Two IRA Strategies For 2015

By Beverly DeVeny, Chief IRA Analyst
Follow us on Twitter: @BevIRAEdSlott

I’ve received several questions about these two popular planning strategies, and whether it was too late to incorporate them when you sit down with your CPA. The short answer is yes, the ship has sailed. And here’s why.

Strategy 1 – Qualified Charitable Distributions
Qualified charitable distributions (QCDs) have now been made permanent by Congress. That’s the good news. The bad news is that the Protecting Americans from Tax Hikes (PATH) Act that made QCDs permanent was not signed into law until December 18, 2015. The law made QCDs effective retroactive to January 1, 2015. Despite the fact that it was enacted so late in the year, you only had until December 31, 2015 to have your QCD distribution for 2015 leave your retirement account. If you had done a transaction earlier in the year, you were good to go. But, if you waited for the legislation and could not get a distribution done in time, the ship has sailed for 2015.

There are no transition rules. There is no way to put a required minimum distribution (RMD) that was payable to you back into your IRA so you can now transform it into a QCD. If you took an RMD and made a contribution to a qualifying charity in the exact same amount, you do not have a QCD. You cannot take a distribution in 2016 and have it qualify as a 2015 QCD. That is how Congress wrote the law.

Going forward, you can now do QCD planning with certainty for the year. Keep in mind the basic rules. You must be age 70 ½ at the time of the distribution. The distribution must go directly to the charity. It can’t be included in your income and you don’t receive a charitable deduction. A QCD can satisfy your RMD for the year, but is capped at $100,000.

Example: Phil has an RMD of $45,000. His QCD of up to $45,000 will satisfy all or part of his RMD. Phil can do a QCD up to $100,000. Troy has an RMD of $125,000. He can do a QCD of up to $100,000, which will go toward satisfying his RMD for the year. He must take an additional distribution that will be taxable to satisfy the balance of his RMD.

Strategy 2 – Roth IRA Conversion
In order to have a 2015 Roth IRA conversion, the funds must leave the distributing retirement account by December 31, 2015. There are no exceptions to this rule. Any funds distributed now will be a 2016 Roth IRA conversion. If you make this mistake and do not want a 2016 Roth conversion, you can always recharacterize all or part of the converted amount back to an IRA. You have until October 15, 2017 to recharacterize a 2016 Roth conversion.

You can make a Roth IRA contribution up to April 15, 2016 (which for 2016 is actually April 18), but you do not have the same deadline for a Roth IRA conversion. Roth conversion funds do not have to be in the Roth IRA in 2015.

For example, if you do the conversion as a 60-day rollover (which we never advise) and you receive the funds in December, you have until February to get those funds into a Roth IRA. This is a 2015 conversion since your 1099-R will show the distribution as occurring in 2015.

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