Another QCD Question: Inherited IRA

[38Chevy454]

Discussion on the "Charitable Giving" thread has me thinking and I am not sure I know what is correct. I did not want to reply in that thread, so started my own.

I have a small inherited 403b, from approx 10 years ago. So falls under the prior rules and I have to take RMD each year since it was from my father who was in RMDs when he passed. I did set up for my age on the RMD percentage calculation; which minimizes my RMD amount i have to take. The RMD amount is only around $4K each year, so not much of a big deal; but it does add to my taxable income each year since the RMD is required.

So my question is can I benefit by doing a QCD on this RMD when I am pre-RMD age? Or is that only beneficial once I reach RMD age. I am 57 currently, so my RMD age is a ways off. But if I can do the QCD now, it would save me the taxes on that money. I meet the charity contribution already, so it is just a tax savings question. Thanks for the help.

 

[cathy63]

You can only do a QCD if you are 70 1/2 or older. Once you reach that age, then a QCD will benefit you if you are using the standard deduction or if you are giving more than the max you can get as an itemized deduction.

 

[38Chevy454]

OK thanks. I knew about the age 70.5 for my own IRAs, just wasn't knowing if the rules may apply to inherited IRA. Oh well, guess I just take the inherited RMD and pay the taxes on it. Could be worse problems to have.

 

[SecondCor521]

I was going to wonder aloud if QCDs are permissible from inherited IRAs, but Pub 590B doesn't mention any such restriction so I'd guess it's OK.

A QCD can also benefit in some other ways - first, the QCD is not even included in AGI, so any AGI-related items or benefits are not impacted. This would include things such as FAFSA EFC/SAI and various AGI-related phaseouts. (Also ACA subsidies, but at age 70.5+ ACA is almost certainly not an issue.)

Second, if OP is charitably minded anyway, using QCD dollars for that purpose avoids using other dollars for that purpose. Those other dollars can then be left alone. For example, if the source of charitable contributions would have been from LTCG sales of stock in a taxable account, then a QCD would permit those dollars to remain as unrealized gains. Not realizing those gains would then avoid the LTCG taxes - a further tax savings.

 

[RE2Boys]

QCDs can only be made from IRA accounts. 401k or 403b accounts are not eligible for QCDs.

You would need to roll-over the 403b to a traditional IRA account in order for the account to be eligible for a QCD. Once in an IRA, a QCD can be used to satify an RMD requirement. However, I believe if you otherwise qualify for QCD (at least 71.5 years old), you do not need to have a RMD requirement to make a QCD. At age 57, you would not be eligilbe to make a QCD.

 

[38Chevy454]

Well, my tax savings idea certainly won't work, especially given that it is a 403b. Maybe i should just take RobbieB's advice and blow the dough by taking it all out and buying a new Cadillac CT5V Blackwing. I may not like the taxes due, but the car will make me smile

 

[RetireBy90]

I was going to wonder aloud if QCDs are permissible from inherited IRAs, but Pub 590B doesn't mention any such restriction so I'd guess it's OK.

A QCD can also benefit in some other ways - first, the QCD is not even included in AGI, so any AGI-related items or benefits are not impacted. This would include things such as FAFSA EFC/SAI and various AGI-related phaseouts. (Also ACA subsidies, but at age 70.5+ ACA is almost certainly not an issue.)

Second, if OP is charitably minded anyway, using QCD dollars for that purpose avoids using other dollars for that purpose. Those other dollars can then be left alone. For example, if the source of charitable contributions would have been from LTCG sales of stock in a taxable account, then a QCD would permit those dollars to remain as unrealized gains. Not realizing those gains would then avoid the LTCG taxes - a further tax savings.

Just a side comment on second point, if you have LTCG you can donate the stock and not incur a tax bite. We did this to fund a charitable trust with Fido after we lost ability to itemize on taxes. We have done it 2 times now and they pushed us above the standard deduction when we added in $10K of SALT and mortgage interest. YMMV

 

[SecondCor521]

Just a side comment on second point, if you have LTCG you can donate the stock and not incur a tax bite. We did this to fund a charitable trust with Fido after we lost ability to itemize on taxes. We have done it 2 times now and they pushed us above the standard deduction when we added in $10K of SALT and mortgage interest. YMMV

Agreed - good reminder. The stock does have to be LT, as you noted.