An initial ROTH conversion was completed in 2018 for tax year 2018. A second conversion was completed in 2019 for tax year 2019. There was no ROTH IRA account prior to 2018 and the account owner is over 59 ½. The 5-year holding period will be satisfied on 1/1/2023. Does each ROTH conversion transaction have a separate 5-year clock to determine whether earnings are tax free or is it just the initial transaction? Thank you in advance for your assistance.
Dan
Answer:
Dan,
For those under the age of 59 ½, yes, each Roth conversion has its own 5-year clock. However, the account holder you are inquiring about is already over 59 ½. As such (and since this is his very first Roth IRA account), he only has to concern himself with the 5-year clock on the 2018 conversion.
As we gradually peel back the layers of this legislative onion called the SECURE Act, more and more discoveries come to light. One revelation is how qualified charitable distributions (QCDs) are potentially affected. Could a QCD become, effectively, a taxable distribution? A looming cloud could soon peer over the shoulders of otherwise generous and giving individuals.
As a reminder, QCDs can be done by IRA owners (and inherited IRA owners) who are age 70½ or older. (The SECURE Act raised the age of RMDs to 72. However, the Act did not increase the age for QCDs - 70½ is the status quo.) IRA assets are transferred directly from an IRA to an eligible charity, and the dollar amount of the QCD is excluded from the account owner’s taxable income up to a maximum of $100,000 annually.
Question:
As year-end approaches, I have just exceeded my 2019 RMD, combining total QCD's during the year and my regular monthly IRA withdrawals.
If I make additional charitable contributions from my IRA this month, are they still considered tax-advantaged QCD's, or has my QCD opportunity ended because I've already exceeded the annual RMD?
Answer:
This is an area where there is a lot of confusion! While you can use a qualified charitable distribution (QCD) to count toward your required minimum distribution (RMD), your QCDs for the year are not limited to the amount of your RMD.
If you are charitably inclined and have an IRA, you might want to consider doing a Qualified Charitable Distribution (QCD) for 2019. The deadline for a 2019 QCD is fast approaching. It is December 31, 2019 and many custodians have even earlier cutoffs. Don’t miss out on this valuable tax break. Here are ten QCD rules you need to know.
1. Must be Age 70 ½
IRA owners who are age 70½ and over are eligible to do a QCD. This is more complicated than it might sound. A QCD is only allowed if the distribution is made on or after the date you actually attain age 70 ½. It is not sufficient that you will turn 70 ½ later in the year.
2. Beneficiaries Can Do QCDs
QCDs are not limited to IRA owners. An IRA beneficiary may also do a QCD. All the same rules apply, including the requirement that the beneficiary must be age 70 ½ or older at the time the QCD is done.
Earlier this month, a tax notification service released information declaring that “North Carolina Governor Roy Cooper signed legislation allowing an income exclusion for distributions from individual retirement accounts (IRAs) to charities by taxpayers age 70½ or older. Beginning with the 2019 tax year, North Carolina conforms to the federal income exclusion from personal income tax for a qualified charitable distribution from an individual retirement plan by a person who has attained the age of 70½.”
Were individuals living in North Carolina ineligible to do QCDs prior to the governor signing this legislation? No – QCDs were certainly allowed in North Carolina. Every IRA owner who is otherwise eligible to do a QCD can do so. What this announcement was referring to is the impact QCDs have on state taxes.
Question:
Hi Ed,
My question:
Is there any way to do a charitable distribution from my IRA before I reach RMD age? I am recently retired and 65 years old.
Thanks!
Marty
Answer:
Marty - The number-one requirement to be able to do a Qualified Charitable Distribution (QCD) is that the IRA account owner must be 70 ½ years old. We are not talking about the year in which you turn 70 ½, we are talking about actually being 70 ½. In fact, even on inherited IRAs, where the deceased account owner may have already reached 70 ½, it does not change the fact that the current account owner of the inherited IRA must also be 70 ½ before they can do a QCD.
Question:
Hello,
I’ve been a follower of Ed’s expertise for over 10 years. The information has always been helpful and clearly explained.
At this time, I’m looking to help a client minimize her taxes. She recently inherited an IRA from her father. She has taken the “Stretch IRA” option and is now receiving her required distributions.
Can she utilize a Qualified Charitable Distribution to her church (verified 501c3) to reduce her tax liability and still maintain the stretch IRA?
Answer:
Yes. Qualified Charitable Distributions (QCDs) are available to beneficiaries.
This week's Slott Report Mailbag looks at the possibility of converting a 403(b) to a Roth IRA and outlines the qualified charitable distribution (QCD) process and who is eligible to take advantage of it.
While reasonably basic to an IRA specialist, the 9 ideas below are often overlooked by consumers and many financial practitioners alike who do not specialize in IRAs. Used appropriately, they may often help individuals and families preserve their retirement wealth. Perhaps they can help you too. Consider researching in more depth on your own, or perhaps broach any of the topics you feel may apply to you in more detail with your financial consultant(s).
IRAs and 401(k)s share a lot of similarities. They are both retirement plans. They both can help you lower your tax bill today, provide tax-deferred growth and help provide an income source in retirement. That said, there are also many differences between IRAs and 401(k)s. Some are relatively benign and probably won’t impact you very much, but other differences can make one type of account far superior to the other in your particular situation. With that in mind, today, we explore 5 things you can do with an IRA that you can’t with a 401(k).
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