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More Questions About QCDs And IRAs

By Julie Jason, originally posted on Forbes.com.

A while back, I wrote about the “age gap” where a person could take a qualified charitable distribution (QCD) at age 70 ½ before his or her RMD-age of 72. RMDs are required minimum distributions. Here are some additional QCD questions raised by my Forbes.com readers.

QCD Details

For a quick review, QCDs are a good way to donate to charity using your IRA account. But, they are not available to just anyone with an IRA.

There are age requirements, as we’ll discuss here. There are limits ($100,000 per person per year). There are protocols to follow. (The QCD withdrawal must go to a qualified charity as a direct transfer from the trustee of your IRA to the charity.)

One advantage of a QCD is to avoid or lessen taxes on an RMD. As an example: If you have an RMD of $20,000 for 2021, you can do a QCD of $20,000 before Dec. 31, 2021 to offset the tax effect of the $20,000 RMD. Your $20,000 goes to the charity; zero goes to the U.S. Treasury; zero goes to you.

An advantage for someone who is not 72 (RMD age), but at least 70 1/2, is to be able to use the IRA to donate to charity without triggering a tax on the IRA withdrawal. But, you must be over age 70 1/2 at the time you arrange the donation. All of the QCD protocols must be met.

Important Reminder

Every tax situation calls for individualized advice from a tax adviser who knows your personal situation. The following answers to questions provide general guidelines.  

QCD From 457?

N.H. asked:

“Can you do a QCD with your RMD from a 457 account?”

According to IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs),” under “Qualified charitable distributions,” you’ll see that the answer is “no.” Namely: “A qualified charitable distribution (QCD) is generally a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax-deductible contributions.”

457 plans, which are deferred-compensation retirement plans available for government and non-government employers, are not eligible for a QCD. Neither are QCDs permissible from 401(k) plans.

An Issue Of Age

W.F. inquired:

“My wife made a QCD in 2019. She turned 70 1/2 in November of that year and was required to take an RMD. She donated to a nonprofit that year when she was 70 years and 4 months and took that donation as a QCD against her RMD. When the IRS says you need to be older than 70 1/2 to make a QCD, are they referring to your age at end of the calendar/tax year or the age when you actually made the donation?”

You’ll have to double-check this one with your tax adviser since you’ve already done the charitable donation.

For future reference, under “Qualified charitable distributions” of IRS Publication 590-B, it states: “You must be at least age 70 1/2 when the distribution was made.”

Age At the Time of Donation

P.W. said: “My father passed away in 2014 and left me with his traditional IRA. I started taking RMDs in 2015 in accordance with my age and longevity. ... I typically do the RMD on 2/1 each year. Do the regulations allow me to do a QCD even though I will be 67 at the time? After all, the regulations require the RMD, so it follows, in my mind, that I ought to be able to match a QCD to it.”

Nice try, P.W. You’re making a good argument; however, you would be going against IRS Publication 590-B, which states that you (whether you are the owner or the beneficiary) must be at least 70 ½ years old to make a QCD.

IRS Notice 2007-7, Question 37 is consistent with this conclusion: “Is the exclusion for qualified charitable distributions available for distributions from an IRA maintained for a beneficiary if the beneficiary has attained age 70 ½ before the distribution is made?”

The answer: “Yes. The exclusion from gross income for qualified charitable distributions is available for distributions from an IRA maintained for the benefit of a beneficiary after the death of the IRA owner if the beneficiary has attained age 70 ½ before the distribution is made.”

Early RMD?

R.G. asked: “I am 70 and will be 71 in April [2022]. Consequently, I don’t have to take an RMD until 2023. I think I’ve read that I would be able to take a QCD in 2022, and count it as part of my RMD in 2023. However, I haven’t been able to find that statement.”

As R.G. noted, he won’t be required to take a retirement distribution before 2023 because he turns 72 in 2023.

Can he take his 2023 RMD in advance? No. Of course, he can take IRA withdrawals at any time, but they are not mandated before age 72 under the SECURE (Setting Every Community Up for Retirement Enhancement) Act, which was enacted at the end of 2019.

However, he can take a QCD in advance of reaching age 72. An IRA owner can take a QCD after reaching age 70 1/2. That QCD is not tied to an RMD. It’s a way to donate to charity while avoiding a tax on the withdrawal.

It goes without saying that anyone considering this option would need to talk with his or her tax adviser. Tax advice is always individual to the taxpayer.


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