Keep TIRA for QCD charitable giving, vs ROTH conversion

[Bongleur]

Keep vacillating on keeping something in the TIRA.
Letting it grow for 10-15 years, then using it as a sinking fund for a Qualified Charitable Gift to pay the usual charity donations sounds good - no taxes at all, which leaves more for the charities.

I did a simple sinking fund spreadsheet, assuming 5% growth and anticipated dollar payouts each year, to last 10-15 years before depletion, to figure out how much to leave in the TIRA. Starting at age 72 1/2 it seems like 10-15 years should not exceed our lifespans, so a good depletion time.

OTOH if that doesn't work out for some reason, like repealing the charitable tax free ability, I'd be paying a lot more in tax than converting it now, before the current temporarily lower tax schedule reverts to something far more confiscatory.

How much pain & effort does it take to set up the "direct donation" required for the "pay no taxes if you are age 72 1/2" deal?

 

[kaneohe]

....................................
How much pain & effort does it take to set up the "direct donation" required for the "pay no taxes if you are age 72 1/2" deal?

assuming you're talking about the QCD??, no pain and effort if your IRA custodian supports checkwriting for your IRA. Just order your checkbook and write away. You may need to have cash in the account.

If you don't have checkwriting, just prepare a list of charities and amounts on whatever form your custodian requires, then submit the form. Checks will be sent to you to mail to charities. In some cases the custodian may mail the checks directly to the charities. That seems like much more work providing that info than just stuffing the checks in self-adddressed envelopes you presumably get from the charities.

 

[Dtail]

Minor question.
Why 72.5 vs. 72?

 

[Bongleur]

Minor question.
Why 72.5 vs. 72?

my typo, its 70 1/2. Just another stupid rule to make counting years difficult. Standard Social Security procedure. Why 66 2/3 as full eligibility age for SS?

https://www.kitces.com/blog/qualifi...om-ira-to-satisfy-rmd-rules-and-requirements/

 

[Bongleur]

assuming you're talking about the QCD??, no pain and effort if your IRA custodian supports checkwriting for your IRA. Just order your checkbook and write away. You may need to have cash in the account.

That's what I'm not so sure about. Kitces does not mention doing that in his article, & he's usually very precise. And since it would be the simplest way, why not mention it. He mentions the important detail that the first distribution(s) of the year is counted against the RMD -- so if you also take money for spending, that needs to be done AFTER giving the charitable donation.

 

[RunningBum]

That's what I'm not so sure about. Kitces does not mention doing that in his article, & he's usually very precise. And since it would be the simplest way, why not mention it. He mentions the important detail that the first distribution(s) of the year is counted against the RMD -- so if you also take money for spending, that needs to be done AFTER giving the charitable donation.

I'm sure he doesn't go into it because it varies from custodian to custodian, and can change over time.

Why not just ask your IRA custodian how it works? Or search for it? It's not a generic question that has a generic answer.

I googled "Vanguard QCD" (as an example) and got pointed to this:
https://investor.vanguard.com/contact-us/faqs/how-do-i-take-a-qualified-charitable-distribution-qcd

VG doesn't give you a checkbook, but the process looks straightforward and easy.

 

[VanWinkle]

I'm sure he doesn't go into it because it varies from custodian to custodian, and can change over time.

Why not just ask your IRA custodian how it works? Or search for it? It's not a generic question that has a generic answer.

I googled "Vanguard QCD" and got pointed to this:
https://investor.vanguard.com/contact-us/faqs/how-do-i-take-a-qualified-charitable-distribution-qcd

VG doesn't give you a checkbook, but the process looks straightforward and easy.

Thanks for the link, very good explanation of "how to" from Vanguard.

 

[OldShooter]

DW and I didn't have to do anything. Schwab just mailed us checkbooks when we turned 70 1/2.

We pay almost all charitables that way, even including public radio. Why not?

 

[kaneohe]

........................................... He mentions the important detail that the first distribution(s) of the year is counted against the RMD -- so if you also take money for spending, that needs to be done AFTER giving the charitable donation.

You might want to ask Kitces if he still stands behind his Ex 2. I believe it is not correct.

1)Yes,the first distribution(s) of the year is counted against the RMD. Suppose your RMD is 6K. You take 6K for spending and 6K for QCD. If you take spending first, the spending satisfies the RMD and increases your income by 6K. The subsequent 6K QCD is not taxable (or deductible) so your total income is increased by the 6K (spending) RMD.

Now reverse the order: you take the 6K QCD first. It satisfies the RMD and does not increase your income. However the subsequent 6K withdrawal for spending will increase your income by 6K. The end result in both cases is the same: 6K spending withdrawal, 6K QCD with net 6K taxable income.

2) Now change the scenario: same 6K RMD but take only 3K spending and 3K QCD. Again order does not matter. The 2 withdrawals satisfy the RMD and only 3K is taxable.

3)Where it matters: suppose you don't need the spending but you take a 6K withdrawal first to satisfy your RMD. Later that yr you want to make a QCD so you take a 6K QCD. The QCD does not increase your taxable income but the first RMD withdrawal did increase it by 6K.

If you had simply taken the 6K QCD first and no other withdrawal (since you did not need it for spending), your income would not have increased at all and you would have 6K more still sheltered in your IRA.

 

[youbet]

Nice explanation kaneohe. I printed it out for DW to ponder since I haven't been successful in 'splaining it to her........

 

[Souschef]

QCD's are a great way to donate. In my case, they count as part of my RMD, but do not increase my taxable income.
For example, if I withdrew $1000 from my IRA, then wrote a check to a charity, I would have to pay about $270 additional in state and federal taxes.
However, if I do a QCD, I pay no additional taxes but satisfy part of my RMD.

 

[OldShooter]

QCD's are a great way to donate. In my case, they count as part of my RMD, but do not increase my taxable income.
For example, if I withdrew $1000 from my IRA, then wrote a check to a charity, I would have to pay about $270 additional in state and federal taxes.
However, if I do a QCD, I pay no additional taxes but satisfy part of my RMD.

For us it's even better. Our charitables used to push us well above the standard deduction but now, between removing them from income and the increased standard deduction we probably get $10K or more in "free" deductions by taking the standard. Last year was our first RMD year and it was the first year that I can remember where we took the standard deduction. Very nice.

 

[Bongleur]

You might want to ask Kitces if he still stands behind his Ex 2. I believe it is not correct.
snip

You are simply contradicting Kitces -- show some evidence that what he said is wrong. Otherwise people doing it your way might get terribly screwed.

 

[Bongleur]

Looks like Vanguard does not keep track of your QCD distributions, it just fills out the check. So what do you have to present to the IRS to prove your withdrawals are all QCD? Be nice if Vanguard would put that data on the withdrawal information they send to the IRS.

 

[kaneohe]

from the Kitces link:

"Example 2. Chuck had a $7,400 RMD obligation for the current 2016 tax year. In February, he took a $7,400 to satisfy his entire RMD. In March, Chuck realizes that it may have been better for him to do a QCD instead, as he was planning to contribute to charity later in the year anyway. However, even if Chuck now does a QCD, it cannot be applied towards his RMD (which was already satisfied), nor can he undo his prior RMD (which is irrevocable once distributed). At best, Chuck can simply take the $7,400 distribution he took from his IRA, donate it to a charity, and claim a $7,400 charitable deduction as an itemized deduction on Schedule A, and hope that it at least mostly offsets his prior taxable distribution."

I agree w/ the first part (before the bolded section). I disagree w/ the last part. The article was written in 2016 , well before the new tax law which made deducting charitable contributions more difficult for many because of the new higher standard deduction. Seems much better to do the QCD to make the charitable contribution more efficient even if it's after the RMD and save the regular withdrawal for normal spending.

Of course, the optimum choice would have been to do the QCD first.

 

[kaneohe]

Looks like Vanguard does not keep track of your QCD distributions, it just fills out the check. So what do you have to present to the IRS to prove your withdrawals are all QCD? Be nice if Vanguard would put that data on the withdrawal information they send to the IRS.

Agree w/ your last statement but I don't think any custodian does that. Perhaps they don't want the burden of having to prove that the QCD is valid......that's left to the taxpayer to collect the receipts showing amounts, that the charity was a valid organization to receive QCDs, and that no services/goods were given to the taxpayer in exchange for the donation.
You will also have "copies" of the checks from the custodian showing they were written to the charity, not you.

 

[Bongleur]

I agree w/ the first part (before the bolded section). I disagree w/ the last part. The article was written in 2016

What you think is logical & convenient has nothing to do with the tax law. Has the law changed or not?

 

[Bongleur]

Agree w/ your last statement but I don't think any custodian does that.

Anyone know what IRS form you will need to fill out to prove your QCD? Vanguard does not mention any on their "how to" page.

 

[braumeister]

Anyone know what IRS form you will need to fill out to prove your QCD? Vanguard does not mention any on their "how to" page.

Why would you ask Vanguard? Ask the IRS.

To report a qualified charitable distribution on your Form 1040 tax return, you generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution. Enter "QCD" next to this line. See the Form 1040 instructions for additional information.

 

[Golden sunsets]

2018 was the first year we used QCD's as a vehicle for distributing our charitable donations. We did it again in 2019. Our broker, which handled sending out the checks for us, did not differentiate on the 1099 that some portion of the withdrawal was QCD. But there is a section of the new 1040 that records what portion of the withdrawal is not taxable. Our accountant, knowing our QCD's based on the info we provided to him, inserted the correct number on the 1040. As far as I can see, the IRS has no way of knowing, without an audit if the correct number is being reported. Thus we have documentation supporting the basis, should we be audited.

For 2019. I purchased a discounted H&R Block software package back in November in order to assist us in determining our tax liability and notice that their software asks the question on non taxable withdrawals contained in the 1099 and on the draft 1040 generated by the software correctly reports the taxable portion of the IRA withdrawal. Again, we have full documentation should we need it.

One does have to be over RMD age to utilize this QCD option.

 

[kaneohe]

What you think is logical & convenient has nothing to do with the tax law. Has the law changed or not?

from prior post: " The article was written in 2016 , well before the new tax law which made deducting charitable contributions more difficult for many because of the new higher standard deduction.

Due to the higher standard deduction and SALT limits, it is more advantageous for many seniors (and others) to take the standard deduction , thus making charitable contributions the old way of no benefit to them.

 

[kaneohe]

Looks like Vanguard does not keep track of your QCD distributions, it just fills out the check. So what do you have to present to the IRS to prove your withdrawals are all QCD? Be nice if Vanguard would put that data on the withdrawal information they send to the IRS.

Not clear exactly what you are asking:
1) How to claim QCD from IRS
2) How to prove that the claimed QCDs are really that

Fortunately both have been answered in other posts.