QCD confused

[Badger]

I have considered making a donation to a 501(c)(3) organization but confused from the instructions by the company holding my tIRA account.
I was told by the rep that I provide the name of the 501(c)(3) organization and the amount I am requesting. They would then send me a check that I would personally deliver to the 501(c)(3) organization.
I was under the impression that it would have to be sent by the company holding my tIRA and that if I received the check to be delivered then it would not be counted as a QCD.
I am also under the impression that a QCD would need to be taken before the RMD so they could recalculate my RMD to a lower amount.
I need some accurate information since I would need to make the QCD before June. Thanks

 

[Souschef]

That is not correct. I have checks made out to the 501c3 organization mailed to me then I mail them to the organizations.
I do the QCD's in June and take out the balance of the RMD throughout the year to pay quarterly taxes.
If the check is made out to you, it would not be considered a QCD,
In my account with T Rowe, if the check is mailed directly to the organization, and it is more than $10K, the form must be notarized.

 

[TheWizard]

My tIRA is with Vanguard. They sent me a checkbook last year linked to the settlement fund in my tIRA.
This allows me to write checks to charitable organizations which then send me an acknowledgement letter. I then claim these amounts as a QCD on my form 1040.

Note: I could also write a check on my tIRA to pay something like my property taxes. That would count toward my RMD but obviously would not be a QCD...

 

[VanWinkle]

Good information about the checkbook at Vanguard as I intend to start
QCDs next year at 70 1/2. That seems to be a simple way to take care
of the QCD.

 

[braumeister]

Fidelity has always sent my QCDs directly to the receiving organization upon my request.
Simple and quick.

 

[OldShooter]

Schwab has been providing checkbooks for several years. Write a check, mail it, done. Couldn't be easier.

 

[braumeister]

I am also under the impression that a QCD would need to be taken before the RMD so they could recalculate my RMD to a lower amount.

Yes, you are supposed to take a QCD first, before any RMD amount. Your RMD is established at the start of the year. Simply subtract your total of QCDs from that amount and the remainder is what you'll have to take as RMD.

 

[TheWizard]

Actually, it's okay to mix partial QCDs and tIRA withdrawals for personal use.
And you can do QCDs beyond your RMD amount, up to $105k per year if you desire.
You just need to keep track of which withdrawals were direct to charity and which were not...

 

[OldShooter]

Yes, you are supposed to take a QCD first, before any RMD amount. Your RMD is established at the start of the year. Simply subtract your total of QCDs from that amount and the remainder is what you'll have to take as RMD.

WADR, this is simply not true. First, there is no such thing as an RMD distribution. Distributions are distributions are distributions. Period. The only interaction between RMDs and the QCD gift option is that a QCD is a distribution that counts toward the RMD amount just like any other distribution..

We take plain vanilla distributions during the year as we need cash. We take QCD distributions during the year as we make gifts to charities. Towards the end of the year we check our total distributions against the RMD number to make sure we will be in compliance on 12//31. If we're short, we'll do a plain distribution or a QCD as the situation suits.

The confusion between QCDs and RMDs is, to my amazement, pretty well entrenched. I think it spawned from the time with the age threshold for both was the same. That is no longer the case.

Re timing of distributions, I have never seen any IRS documentation that would support these timing ideas that continue to float around. You can also note that the IRS does not have or ask for any information on the timing or type of distributions and does not even have QCDs and vanilla distributions listed separately on the 1099s.

 

[TheWizard]

I believe Old Shooter is correct.

There ARE some timing issues related to RMDs, but they don't depend on the mix of QCDs and personal distributions.

Specifically, you need to complete your RMD for the year before doing any Roth conversions from the relevant account and before doing any rollover to a different tax-deferred account or custodian..

 

[jebmke]

Good information about the checkbook at Vanguard as I intend to start
QCDs next year at 70 1/2. That seems to be a simple way to take care
of the QCD.

It is important to note that when Vanguard issues the check, the amount comes out of the IRA and is considered a distribution at the time they cut the check whether or not the check is cashed in that year. If you write the check, VG has no idea about it until the check is cashed. If the check is cashed in the next year (or lost in transit), no distribution is recorded by VG. This can cause problems with RMD compliance for those who are using QCDs to satisfy RMD requirements.

I

 

[TheWizard]

It is important to note that when Vanguard issues the check, the amount comes out of the IRA and is considered a distribution at the time they cut the check whether or not the check is cashed in that year. If you write the check, VG has no idea about it until the check is cashed. If the check is cashed in the next year (or lost in transit), no distribution is recorded by VG. This can cause problems with RMD compliance for those who are using QCDs to satisfy RMD requirements.

I

Okay, but the timing sequence is different when I write the check on my Vanguard tIRA myself.
I write the check and mail it to the charity on the 10th.
The charity receives the check and deposits it on the 13th.
Vanguard gets the check and debits the amount from my tIRA settlement fund on the 15th.

Either way, not a good idea to be pushing the end of December...

 

[braumeister]

WADR, this is simply not true. First, there is no such thing as an RMD distribution. Distributions are distributions are distributions. Period. The only interaction between RMDs and the QCD gift option is that a QCD is a distribution that counts toward the RMD amount just like any other distribution..

True, and I should have remembered, but there is still widespread confusion about this. The issue, I think, is the "first dollar out" rule. That is, the first money distributed from an IRA is considered to be satisfying all or part of the RMD for the year. You can't recharacterize any of that to a QCD later.

But you're right; for all practical purposes we don't have to worry about getting a QCD first.

 

[jebmke]

Okay, but the timing sequence is different when I write the check on my Vanguard tIRA myself.
I write the check and mail it to the charity on the 10th.
The charity receives the check and deposits it on the 13th.
Vanguard gets the check and debits the amount from my tIRA settlement fund on the 15th.

Either way, not a good idea to be pushing the end of December...

agree; my plan when the time comes is to focus QCDs on the bigger payments (which are fewer), do these in Q1 and continue to use our DAFs for smaller items. Checks do go missing - we have had two DAF checks disappear into the ether never to be found. Same with checking account. Checks need to be obsoleted in the US. Probably won't happen in my lifetime.

 

[TheWizard]

True, and I should have remembered, but there is still widespread confusion about this. The issue, I think, is the "first dollar out" rule. That is, the first money distributed from an IRA is considered to be satisfying all or part of the RMD for the year. You can't recharacterize any of that to a QCD later.

But you're right; for all practical purposes we don't have to worry about getting a QCD first.

Right, but more simply:
All amounts withdrawn from your tIRA for personal use get included in your AGI for the year.
And all amounts distributed as QCDs are excluded from your AGI for the year.

About the only time there's a problem would be if you wrote a personal check for $1000 to a charity and then realized: Oops, I should have done this as a QCD instead...

 

[rk911]

I have considered making a donation to a 501(c)(3) organization but confused from the instructions by the company holding my tIRA account.
I was told by the rep that I provide the name of the 501(c)(3) organization and the amount I am requesting. They would then send me a check that I would personally deliver to the 501(c)(3) organization.
I was under the impression that it would have to be sent by the company holding my tIRA and that if I received the check to be delivered then it would not be counted as a QCD.
I am also under the impression that a QCD would need to be taken before the RMD so they could recalculate my RMD to a lower amount.
I need some accurate information since I would need to make the QCD before June. Thanks

Based on our experience I believe you're getting bad information.

- We instruct our custodian to direct our RMD's to X number of qualified charities. Assume the RMD is 50K. We can direct 100% of that to a single charity, 50% to each of two qualified charities or any amount to any number of qualified charities so long as the total $ = the RMD.

- Our custodian now mails the checks for us but that's new for them. Prior to 2023 they sent the chevks to us to mail. Doing that does not change anything in terms of reporting requirements.

- The custodian will issue a 1099-R showing the amount withdrawn and the amount taxable. If $50K was withdrawn and the entire amount was donated via QCD the taxable amount on the 1099-R wiol be $0. If your RMD amount was $50K but you donated only $40K bia QCD the 1099 will show $10K as the taxable amount.

- Of course you can withdraw MORE $ from your T-IRA than is required (This is what we did). The entire amount can be donated via QCD...OR only the REQUIRED amount MUST be donated while the excess amount can be used for any purpose. But, remember, ANY portion of the withdrawal that exceeds the minimum required and is NOT donated via QCD will need to be declared as income.

 

[MBAustin]

agree; my plan when the time comes is to focus QCDs on the bigger payments (which are fewer), do these in Q1 and continue to use our DAFs for smaller items. Checks do go missing - we have had two DAF checks disappear into the ether never to be found. Same with checking account. Checks need to be obsoleted in the US. Probably won't happen in my lifetime.

This is exactly how we are using QCDs and DAF. And we have also had checks disappear (although they were QCD checks, not DAF checks).

 

[TheWizard]

... But, remember, ANY portion of the withdrawal that exceeds the minimum required and is NOT donated via QCD will need to be declared as income.

Not quite correct.
All withdrawals not done as QCDs count as Ordinary Income. No minimum requirement involved...

 

[TheWizard]

rk911 raises an interesting point.
If your tIRA custodian writes the checks for your charitable contributions, then yes, your 1099-R could show taxable amount less than total amount withdrawn.

But more commonly, the custodian doesn't know or want to take responsibility for determining if the check from your tIRA went to a qualified charity, as in my previous example of possibly using a tIRA check to pay my property taxes.

So in that case, it's up to the taxpayer to maintain proper records to determine the taxable amount of IRA distributions for 1040 line 4a and 4b...

 

[Badger]

Thank you for all the replies.
It appears that as long as the QCD check the custodian sends me is made out to the 501(c)(3) charity then I can deliver the check and that amount will be excluded from my AGI for the year that would be indicated on 1099-R.
The balance of my RMD will be automatically calculated and withdrawn by the custodian as they have been instructed.

 

[Gumby]

True, and I should have remembered, but there is still widespread confusion about this. The issue, I think, is the "first dollar out" rule. That is, the first money distributed from an IRA is considered to be satisfying all or part of the RMD for the year. You can't recharacterize any of that to a QCD later.

But you're right; for all practical purposes we don't have to worry about getting a QCD first.

The problem comes when your regular, taxable distribution plus your QCD distribution exceeds the RMD amount for the year. If the regular distribution is done first, then some of the tax benefit that comes from allowing a QCD to satisfy part or all of the RMD is lost.

 

[braumeister]

The main thing for you to keep in mind is to keep the letter (or email) the organization sends you containing the amount and the stipulation that you didn't get anything tangible in return for it.
Probably not necessary, but might be important in case you're audited.
When you do your taxes, the software will show the total distribution, the taxable amount (total less QCD), and will print "QCD" on that line.

 

[Gumby]

The main thing for you to keep in mind is to keep the letter (or email) the organization sends you containing the amount and the stipulation that you didn't get anything tangible in return for it.
Probably not necessary, but might be important in case you're audited.
.....

That has always been good advice for charitable contributions if you itemize, and I can see its importance for QCDs as well.

 

[TheWizard]

The problem comes when your regular, taxable distribution plus your QCD distribution exceeds the RMD amount for the year. If the regular distribution is done first, then some of the tax benefit that comes from allowing a QCD to satisfy part or all of the RMD is lost.

Hmmm, let's think about this.
Let's say my RMD for the year is $30k.

Case1: I do a QCD for $20k in April and a distribution of $20k for personal use in July

Case 2: I do a $20k personal distribution in April and a $20k QCD in July.

In both cases the QCD amount is excluded from my AGI while the personal distribution is included in my AGI.
So the order of events doesn't matter.
What am I missing?

 

[braumeister]

Hmmm, let's think about this.
Let's say my RMD for the year is $30k.

Case1: I do a QCD for $20k in April and a distribution of $20k for personal use in July

Case 2: I do a $20k personal distribution in April and a $20k QCD in July.

In both cases the QCD amount is excluded from my AGI while the personal distribution is included in my AGI.
So the order of events doesn't matter.
What am I missing?

I think it's only important if you don't want to reduce your IRA balance by more than the RMD amount.