QCD confused

[rk911]

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the checks for your charitable contributions, then yes, your 1099-R could show taxable amount less than total amount withdrawn.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...

We keep, IMO, immaculate records. So far, we haven't had to put that to the test.

But it appears we are fortunate in that our tIRA custodian mails the QCD checks for us. We supply our advisor with the name, address, tax id number and contact name at the charity along with the amount to be donated and the custodian does the rest. This past year my wife's QCD was split among five different charities and my QCD was split between three different charities. Our custodian sent out 8-checks...no charge. Of course we receive acknowledgement letters from each charity, 1099-Rs showing the withdrawal and the taxable income as well as documentation for each QCD from the custodian. In both case our QCDs exceeded the RMD due.

 

[braumeister]

We keep, IMO, immaculate records. So far, we haven't had to put that to the test.

But it appears we are fortunate in that our tIRA custodian mails the QCD checks for us. We supply our advisor with the name, address, tax id number and contact name at the charity along with the amount to be donated and the custodian does the rest. This past year my wife's QCD was split among five different charities and my QCD was split between three different charities. Our custodian sent out 8-checks...no charge. Of course we receive acknowledgement letters from each charity, 1099-Rs showing the withdrawal and the taxable income as well as documentation for each QCD from the custodian. In both case our QCDs exceeded the RMD due.

Same here. Fidelity is wonderful about this, as they also are with our DAF.

 

[OldShooter]

I like the Schwab write-your-own-check system because using it is so easy that it is the rare charitable that we don't pay as a QCD. For example, we send QCD checks to a couple of public radio stations and the state sheriff's association. The sheriffs get $25/year, too small IMO to communicate with an IRA custodian about. DW also sends QCDs for small memorials where the family has specified a charity.

Something that has not been mentioned here: In Olden Times, our charitable contributions were half or more of the standard deduction and the other half was deductibles like property taxes, etc. So we itemized. Now, with the charitables done via QCD, we are able to take the standard deduction, which creates extra deductions of about half of the total. So we are actually profiting from using the QCDs. (Hopefully that makes sense; it is a little hard to explain.)

 

[TheWizard]

I like the Schwab write-your-own-check system because using it is so easy that it is the rare charitable that we don't pay as a QCD. For example, we send QCD checks to a couple of public radio stations and the state sheriff's association. The sheriffs get $25/year, too small IMO to communicate with an IRA custodian about. DW also sends QCDs for small memorials where the family has specified a charity.

Something that has not been mentioned here: In Olden Times, our charitable contributions were half or more of the standard deduction and the other half was deductibles like property taxes, etc. So we itemized. Now, with the charitables done via QCD, we are able to take the standard deduction, which creates extra deductions of about half of the total. So we are actually profiting from using the QCDs. (Hopefully that makes sense; it is a little hard to explain.)

Sadly, Vanguard has a $250 minimum for tIRA check writing. That's not an issue for my major contributions but there are a few membership things less than $100.

If the TCJA actually sunsets at the end of 2025, then I'll be back to itemizing again, so it won't matter much.
We'll see...

 

[braumeister]

Sadly, Vanguard has a $250 minimum for tIRA check writing. That's not an issue for my major contributions but there are a few membership things less than $100.

I believe Fidelity's minimum is $50.

 

[youbet]

- 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.

This is the part I've been confused on. Thanks for the clear explanation!

 

[youbet]

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...

How does Vanguard distinguish between checks written as a QCD and those you write to pay something not qualified as a QCD? The name of the payee may not be a good indicator in some cases.

 

[braumeister]

- 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.

In my experience, the 1099-R has always had the "Taxable amount not determined" box checked. It's up to me to say how much was a QCD.

 

[TheWizard]

How does Vanguard distinguish between checks written as a QCD and those you write to pay something not qualified as a QCD? The name of the payee may not be a good indicator in some cases.

They don't.
It's on you to have evidence on which checks were valid QCDs.
Basically no different than validating after-tax charitable contributions...

 

[TheWizard]

In my experience, the 1099-R has always had the "Taxable amount not determined" box checked. It's up to me to say how much was a QCD.

Checko...

 

[jebmke]

In my experience, the 1099-R has always had the "Taxable amount not determined" box checked. It's up to me to say how much was a QCD.

Correct. The custodian has no idea what the taxable amount of a distribution is.

 

[OldShooter]

They don't.
It's on you to have evidence on which checks were valid QCDs.
Basically no different than validating after-tax charitable contributions...

We use the Schwab checks exclusively for QCDs. We never use them to draw funds for other uses, in fact it never even occurred to me to use them that way though obviously we could. The check numbers appear on our IRA statements and it is up to us to remember to whom they were written and, of course, to get and keep the acknowledgement letters from the charities. We write about 10-20 QCD checks a year between DW and me, so the recordkeeping is not much of a burden.

Re minimums I don't know that Schwab has a minimum QCD. The smallest check I recall writing is $25.

 

[TheWizard]

Correct. The custodian has no idea what the taxable amount of a distribution is.

Well, they might think they do in the case where the custodian writes the checks for QCDs.
But I can see problems with that assumption...

 

[youbet]

We use the Schwab checks exclusively for QCDs. We never use them to draw funds for other uses, in fact it never even occurred to me to use them that way though obviously we could. The check numbers appear on our IRA statements and it is up to us to remember to whom they were written and, of course, to get and keep the acknowledgement letters from the charities. We write about 10-20 QCD checks a year between DW and me, so the recordkeeping is not much of a burden.

Re minimums I don't know that Schwab has a minimum QCD. The smallest check I recall writing is $25.

On the 1099 you get from Schwab, does it say "Taxable Amount Not Determined?" And you provide the information to your tax software to separate the taxable and non-taxable portions?

 

[TheWizard]

On the 1099 you get from Schwab, does it say "Taxable Amount Not Determined?" And you provide the information to your tax software to separate the taxable and non-taxable portions?

Yes indeed.
And in the event that the IRS decides to check you out, would be most excellent to have documentation to support your claim...

 

[rk911]

In my experience, the 1099-R has always had the "Taxable amount not determined" box checked. It's up to me to say how much was a QCD.

Yup. I pulled my 1099-R and that box IS checked. I stand...or sit...corrected. Apologies

My tIRA 1099-R has the box checked but the box on the 1099-R for my wife's non-spousal inherited tIRA is blank.

 

[frank05]

I like the Schwab write-your-own-check system because using it is so easy that it is the rare charitable that we don't pay as a QCD. For example, we send QCD checks to a couple of public radio stations and the state sheriff's association. The sheriffs get $25/year, too small IMO to communicate with an IRA custodian about. DW also sends QCDs for small memorials where the family has specified a charity.

Something that has not been mentioned here: In Olden Times, our charitable contributions were half or more of the standard deduction and the other half was deductibles like property taxes, etc. So we itemized. Now, with the charitables done via QCD, we are able to take the standard deduction, which creates extra deductions of about half of the total. So we are actually profiting from using the QCDs. (Hopefully that makes sense; it is a little hard to explain.)

Its a shame they still use manual checks since most of the firms have associated DAFs which allow on-line electronic contributions. Check fraud in the past few years has increased dramatically even as the use of checks has dropped.

 

[Midpack]

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..

I will have QCDs, RMDs and Roth Conversions all in a few years. So the order of QCDs and RMDs does not matter as long as they’re all done before any conversions? I was in the habit of doing most of my Roth conversion in January (about 80%), sounds like I’ll need to reconsider that practice.

I’ll probably do all QCDs, all RMDs (didn’t want to), and most of my Roth conversion in January. And then a second trim adjustment Roth conversion in December when I fine tune my 4th quarter estimated tax payments.

 

[RetireBy90]

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?

Hrmm so in either case you would have exceeded RMD by $10K and have to add $20K to your MAGA and AGI. Is there a sequencing penalty I've missed here ?
I plan to do QCD each year for 100% of RMD each year.

 

[OldShooter]

Its a shame they still use manual checks since most of the firms have associated DAFs which allow on-line electronic contributions. Check fraud in the past few years has increased dramatically even as the use of checks has dropped.

You can't fund a DAF using a QCD, though something similar to a bill pay system could be set up om a tIRA I guess. Probably QCD activity is so small that its not worthwhile.

 

[TheWizard]

I will have QCDs, RMDs and Roth Conversions all in a few years. So the order of QCDs and RMDs does not matter as long as they’re all done before any conversions? I was in the habit of doing most of my Roth conversion in January (about 80%), sounds like I’ll need to reconsider that practice.

I’ll probably do all QCDs, all RMDs (didn’t want to), and most of my Roth conversion in January. And then a second trim adjustment Roth conversion in December when I fine tune my 4th quarter estimated tax payments.

If you're a higher income retirees dealing with Medicare IRMAA then finalizing those things in December, once you have a good estimate of your other income, makes good sense...

 

[TheWizard]

Hrmm so in either case you would have exceeded RMD by $10K and have to add $20K to your MAGA and AGI. Is there a sequencing penalty I've missed here ?
I plan to do QCD each year for 100% of RMD each year.

I've been doing something similar the past few years, except that the excess withdrawal beyond my RMD is a Roth conversion with an eye on the next higher IRMAA threshold...

 

[Midpack]

If you're a higher income retirees dealing with Medicare IRMAA then finalizing those things in December, once you have a good estimate of your other income, makes good sense...

Exactly. I started trying to maximize Roth conversions to the top of the 22% bracket, but staying under IRMAA tier 2 now takes precedent for a few more years.

 

[SecondCor521]

I will have QCDs, RMDs and Roth Conversions all in a few years. So the order of QCDs and RMDs does not matter as long as they’re all done before any conversions? I was in the habit of doing most of my Roth conversion in January (about 80%), sounds like I’ll need to reconsider that practice.

I’ll probably do all QCDs, all RMDs (didn’t want to), and most of my Roth conversion in January. And then a second trim adjustment Roth conversion in December when I fine tune my 4th quarter estimated tax payments.

Correct. There are some relatively obscure CFRs which require Roth conversions to happen after RMD is met (either as QCDs or ordinary distributions) in order to qualify as valid Roth conversions, and the penalties for invalid Roth conversions are pretty severe IIRC.

I don't think the IRS can tell, and I'm not sure how much they care, and I'm not sure how many people actually know these CFRs exist, but that's still the law of the land.

Beyond that, as far as I know, there are no ordering restrictions in a given calendar year.

 

[The Rodent]

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...

Totally correct. Exactly how I navigated the QCD and RMD transactions for TY 2023. My custodian wrote and mailed the QCD directly to the charity. The TOTAL distribution was reported as TAXABLE income on my 1099. On my form 1040, I reported the QCD as NON-TAXABLE using line 4a and 4b as you stated. TurboTax handled it perfectly