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Old 12-09-2020, 06:31 AM   #61
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So am I the only one planning to do a lot of charitable giving from my IRA next year when I reach age 70.5 thereby reducing my RMDs?
QCDs only apply as part of an RMD. You can’t gift ahead or over AFAIK.

ETA: OK - I see that there is an exception and you can start QCDs when you reach age 70.5 even though RMDs don’t start until the year you reach 72.
https://www.fidelity.com/learning-ce...cds-the-basics
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Old 12-09-2020, 06:54 AM   #62
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QCDs only apply as part of an RMD. You can’t gift ahead or over AFAIK.
Do I understand this correctly. By example, if my RMD w/o setting up a QCD at say age 72 is $500K, then I pay taxes on the $500K. If I set up a $100K QCD, then I pay taxes on $400K? In both cases, $500K comes out of my account.

If you are planning to give every year, why would you not do something like this? As I understand it, you must be 70 1/2 before you can set this up. Is there any other vehicle like this to gift out of your tax deferred accounts prior to age 70 1/2 to help offset RMDs?
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Old 12-09-2020, 07:08 AM   #63
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Do I understand this correctly. By example, if my RMD w/o setting up a QCD at say age 72 is $500K, then I pay taxes on the $500K. If I set up a $100K QCD, then I pay taxes on $400K? In both cases, $500K comes out of my account.

If you are planning to give every year, why would you not do something like this? As I understand it, you must be 70 1/2 before you can set this up. Is there any other vehicle like this to gift out of your tax deferred accounts prior to age 70 1/2 to help offset RMDs?
That sounds right.

Don’t know other vehicles to gift from IRAs without having it fully taxed as income and have to itemize to get a charitable deduction.
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Old 12-09-2020, 07:09 AM   #64
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Yes that is my understanding... if money goes directly from your tIRA to a charity then it counts towards your RMD but is not taxed... as if withdrawn, contributed and deductible with no limitation. I just wish they would allow QCDs at an earlier age.
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Old 12-09-2020, 07:20 AM   #65
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Yes that is my understanding... if money goes directly from your tIRA to a charity then it counts towards your RMD but is not taxed... as if withdrawn, contributed and deductible with no limitation. I just wish they would allow QCDs at an earlier age.
Just thinking about this further, does a QCD really end up being more beneficial than an itemized charitable deduction? Using my example, if you itemized $100k would you not deduct it and get to the same place?
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Old 12-09-2020, 07:27 AM   #66
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Just thinking about this further, does a QCD really end up being more beneficial than an itemized charitable deduction? Using my example, if you itemized $100k would you not deduct it and get to the same place?
Yes, QCDs are considered more beneficial than itemizing charitable deductions.
  1. Itemizing deductions doesn’t reduce MAGI, whereas a QCD does by reducing the IRA withdrawal declared as income. MAGI impacts things like IRMAA.
  2. Itemized deductions are often limited in some way for high income households.
  3. Using a QCD lets you use the standard deduction as well as fully remove the QCD from AGI.
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Old 12-09-2020, 08:22 AM   #67
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Yes, QCDs are considered more beneficial than itemizing charitable deductions.
  1. Itemizing deductions doesn’t reduce MAGI, whereas a QCD does by reducing the IRA withdrawal declared as income. MAGI impacts things like IRMAA.
  2. Itemized deductions are often limited in some way for high income households.
  3. Using a QCD lets you use the standard deduction as well as fully remove the QCD from AGI.
All true. Plus any part of the charitable expense needed to push you over the standard deduction does not really count. For example, say you had $10K in other deductions, had $15K in charitable giving, and the standard deduction is $24K. Your itemized deduction would be $25K, just $1K better than the standard deduction, so you really only got $1K of that $15K of charitable giving deducted.

One advantage to non-QCD charitable giving is that you can use appreciated assets. I found that very simple to do with a DAF.
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Old 12-09-2020, 08:26 AM   #68
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Originally Posted by harllee View Post
So am I the only one planning to do a lot of charitable giving from my IRA next year when I reach age 70.5 thereby reducing my RMDs?
That is my plan. I'll convert what I can before RMDs but plan to do QCD for RMD from what is left after conversions. Then when we get planted about 50% of remainder should go to charities. I believe a well managed charity can be more effective than govt in addressing problems and I can also favor one need over others.
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Old 12-09-2020, 08:34 AM   #69
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One advantage to non-QCD charitable giving is that you can use appreciated assets. I found that very simple to do with a DAF.
But,
- Those appreciated assets are taxed at normally lower cap gains rates than the income tax rates for assets coming out of tIRA's. Also, in my state, cap rates are the same as income tax rates whereas QCD's avoid those also.
- Even those cap gains taxes go away when you die.

Net, the way tax laws are now, I think QCD's are the better deal. Avoiding cap gains taxes are still a deal.
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Old 12-09-2020, 08:47 AM   #70
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Just food for thought, If you had never opened a Tax deferred account and had it all taxable, first you would not have RMDs, and you could with draw
up to $80k of LTCGs at 0% tax. So say that after 30 years of saving, you have an average LTCG of 60%. Example" $1,000,000 Networth, of which $400,000 is money you put in and $600,000 is LTCGs. You could withdraw $133,333, of which $80,000 is LTCGs taxed at 0%. If you can live on $80k, then you reinvest $53,333 back into the fund, this lowers your LTCGs percentage. It probably even gets better if you add in the standard deduction.

Do I have this right?


I'll add, we could not have known that some LTCGs would be taxed at 0% 30 years ago, and we don't know if they will be taxed at 0% 30 years from now.
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Old 12-09-2020, 09:01 AM   #71
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But,
- Those appreciated assets are taxed at normally lower cap gains rates than the income tax rates for assets coming out of tIRA's. Also, in my state, cap rates are the same as income tax rates whereas QCD's avoid those also.
- Even those cap gains taxes go away when you die.

Net, the way tax laws are now, I think QCD's are the better deal. Avoiding cap gains taxes are still a deal.
You get a double benefit from donating appreciated assets, IF you are already itemizing deductions. It doesn't matter than the cap gains rate is lower than regular income because this is an additional benefit.

If I donate $10K of a stock that has appreciated from $5K, that's $5K I won't pay in caps gains. At 15%, that's $750.

Additionally, I increase my itemized deduction by the full $10K, so my taxable income is reduced by $10K. This is similar to the income reduction of QCDs, though it doesn't reduce MAGI like QCDs do.

The $750 is an additional benefit gained by gifting appreciated stock rather than cash.

It's true that your heirs get a stepped up basis if you die with appreciated stock, but that could change.
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Old 12-09-2020, 09:13 AM   #72
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Just food for thought, If you had never opened a Tax deferred account and had it all taxable, first you would not have RMDs, and you could with draw
up to $80k of LTCGs at 0% tax. So say that after 30 years of saving, you have an average LTCG of 60%. Example" $1,000,000 Networth, of which $400,000 is money you put in and $600,000 is LTCGs. You could withdraw $133,333, of which $80,000 is LTCGs taxed at 0%. If you can live on $80k, then you reinvest $53,333 back into the fund, this lowers your LTCGs percentage. It probably even gets better if you add in the standard deduction.

Do I have this right?


I'll add, we could not have known that some LTCGs would be taxed at 0% 30 years ago, and we don't know if they will be taxed at 0% 30 years from now.
Yes, you have it right.... but 1) we didn't know that 0% LTCG would be a thing when we deferred many years ago and 2) a pension and/or SS will reduce the room that you have for 0% LTCG.
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Old 12-09-2020, 09:14 AM   #73
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Just food for thought, If you had never opened a Tax deferred account and had it all taxable, first you would not have RMDs, and you could with draw
up to $80k of LTCGs at 0% tax. So say that after 30 years of saving, you have an average LTCG of 60%. Example" $1,000,000 Networth, of which $400,000 is money you put in and $600,000 is LTCGs. You could withdraw $133,333, of which $80,000 is LTCGs taxed at 0%. If you can live on $80k, then you reinvest $53,333 back into the fund, this lowers your LTCGs percentage. It probably even gets better if you add in the standard deduction.

Do I have this right?


I'll add, we could not have known that some LTCGs would be taxed at 0% 30 years ago, and we don't know if they will be taxed at 0% 30 years from now.
You are ignoring the benefit of deferring taxable income while you are in a higher tax bracket while working. If I was in the 39.6% bracket while working, and pay 22% withdrawing the retirement funds, I saved 17.6% over your method of paying 39.6% to invest that money in taxable and paying 0% when selling the fund. It's all about tax arbitrage.

Many companies matched at least some retirement savings contributions, a further benefits.

Also, if you have all your investments in taxable, you likely have a lot of dividends. That eats into your $80K space of 0% LTCGs. As a single, I have very little room for 0% LTCGs.
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Old 12-09-2020, 09:18 AM   #74
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I'll second Midpack's comment - this is a real gem of an idea that had not occurred to me.
Just when you think you have it figured out and would be bored by yet another Roth conversion discussion... hehehe!


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What I found out is that if I make unlimited Roth conversions or none at all, the same allowable spending amount was returned.
It was a while back, but I ran a parallel set of models and confirmed that i-orp was doing what I expected. Conversions made a difference, but not earth shattering.

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That is my plan. I'll convert what I can before RMDs but plan to do QCD for RMD from what is left after conversions. Then when we get planted about 50% of remainder should go to charities. I believe a well managed charity can be more effective than govt in addressing problems and I can also favor one need over others.
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Just thinking about this further, does a QCD really end up being more beneficial than an itemized charitable deduction? Using my example, if you itemized $100k would you not deduct it and get to the same place?
Not to get too far afield, but for those who are giving, I just read "Doing Good, Better" and it changed how I think about what causes were "best". Of course it's a personal decision, but the concepts presented got me thinking differently about how to make the biggest difference.
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Old 12-09-2020, 09:35 AM   #75
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After reading here, I was playing with i-orp a bit. If you ratchet down the earnings component of your portfolio, and/or force it into a more conservative allocation, you start seeing more differences if you choose the different Roth conversion pulldowns. I think earnings defaults to 7%. You can change this if you go to the advanced screens.

When earnings are so significant, it overwhelms everything else and puts the RMD/Roth issue down in the weeds. Let's hope we all have that problem. On this thread, some who have been doing conversions for many years now report this effect since their conversions can't even keep up with portfolio growth.

One thing to note, though, is the effect of passing on an inherited Roth to your younger beneficiaries. This was discussed above, and for some people may be an important driver of doing aggressive conversions.
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Old 12-09-2020, 09:50 AM   #76
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You are ignoring the benefit of deferring taxable income while you are in a higher tax bracket while working. If I was in the 39.6% bracket while working, and pay 22% withdrawing the retirement funds, I saved 17.6% over your method of paying 39.6% to invest that money in taxable and paying 0% when selling the fund. It's all about tax arbitrage.

Many companies matched at least some retirement savings contributions, a further benefits.

Also, if you have all your investments in taxable, you likely have a lot of dividends. That eats into your $80K space of 0% LTCGs. As a single, I have very little room for 0% LTCGs.
I never had to worry about the 39.6% tax bracket, I don't know that I ever got into more than the 15% bracket. So, I suspect it will work for lower income individuals, but not higher.
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Old 12-09-2020, 09:59 AM   #77
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When earnings are so significant, it overwhelms everything else and puts the RMD/Roth issue down in the weeds.
Good point. My models use historical rates rather than "conservative" rates because I don't think "it's different this time". And I never engage the asset allocation ramp (stays about 2/3 equities).
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Old 12-09-2020, 10:15 AM   #78
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When earnings are so significant, it overwhelms everything else and puts the RMD/Roth issue down in the weeds. Let's hope we all have that problem. On this thread, some who have been doing conversions for many years now report this effect since their conversions can't even keep up with portfolio growth.
Most of us got here by being diligent about the little things. Lots of little things add up to a pretty good sized thing. Making coffee at home instead of buying it daily at Starbucks must also be in the weeds as far as personal economic impact goes, but I think most would consider it a good thing.

As far as earnings growth outpacing conversions, it's good to have the converted part now growing tax free.
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Old 12-09-2020, 10:40 AM   #79
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Most of us got here by being diligent about the little things. Lots of little things add up to a pretty good sized thing. Making coffee at home instead of buying it daily at Starbucks must also be in the weeds as far as personal economic impact goes, but I think most would consider it a good thing.
I'm not arguing that. I think earlier "obsession" was used to address that viewpoint.

I'm still going to do it and hope it gets in the weeds. If we shoud have a decade of bad returns, it sure won't be in the weeds, so yeah, it matters.

Just pointing out that the defaults on i-orp are 7% gain. And that may be OK. Or not.
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Old 12-09-2020, 11:18 AM   #80
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Most of us got here by being diligent about the little things. Lots of little things add up to a pretty good sized thing. Making coffee at home instead of buying it daily at Starbucks must also be in the weeds as far as personal economic impact goes, but I think most would consider it a good thing.
I can make coffee with 2 minutes effort. Starbucks is at least 10 minutes. Starbucks is not worth 8 minutes of my life.
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