Qualified Charitable Distributions and Roth IRAs: Today’s Slott Report Mailbag

Thursday, April 06, 2023

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on Twitter: @theslottreport

Question:

I have been told that QCDs are not allowed from local and state government 457(b) plans.  I have looked at the accountant’s IRS manual, websites etc. and I can’t find any information that prohibits QCDs from this type of plan.  Can you shed some light on this?

Diane

Answer:

Hi Diane,

Sometimes tax rules can be very arbitrary! The tax code specifically only allows qualified charitable distributions (QCDs) from IRAs. A QCD cannot be done from any type of employer plan. There have been legislative proposals to change this, but so far none have been successful. You might consider doing a rollover to an IRA from your plan and then doing QCDs from the IRA.

Question:

I have two Roth IRAs with different firms.  One was started in 2008, and one was started last year. If I start withdrawing funds from the account started last year, am I in violation of the 5-year rule? Or since I started the first Roth IRA in 2008, am I beyond the 5-year window? I am over 65.

Answer:

The 5-year rule for Roth IRA distributions can be confusing. For a distribution from a Roth IRA to be considered a qualified distribution (meaning the earnings come out tax-free), a 5-year holding period must be satisfied. This 5-year period begins with an individual’s first contribution or conversion made to any Roth IRA. It does not restart even if other Roth accounts are opened. In your case, because you are over age 59 ½ and you opened your first Roth IRA more than 5 years ago, any distribution you take from any of your Roth IRAs would be completely tax and penalty free.

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