QCD Question

[joesxm3]

In your case above you aren’t using the QCD to meet your RMD as you directly withdrew $25K (to yourself) and in addition you made a $60K QCD which doesn’t add to your AGI. So your ordinary income is still $100K

I suspect that’s causing some confusion.

If you had instead donated the $25K as a QCD which also met your RMD requirement, then your ordinary income would have been $75K.

That is what I meant to say.

I guess I figured that with $75,000 ordinary income and the need to do a $25,000 RMD I would have an AGI of $100,000. But doing the QCD (by having the broker send it to the charity) whether I did $25,000 or $60,000 QCD my AGI would be $75,000 at the end.

Thereby saving me from hitting some hypothetical cliff trigger at $100,000.

 

[audreyh1]

That is what I meant to say.

I guess I figured that with $75,000 ordinary income and the need to do a $25,000 RMD I would have an AGI of $100,000. But doing the QCD (by having the broker send it to the charity) whether I did $25,000 or $60,000 QCD my AGI would be $75,000 at the end.

Thereby saving me from hitting some hypothetical cliff trigger at $100,000.

In that scenario you just have to be careful not to withdraw any IRA funds to yourself as you can’t reverse it later or turn it into a QCD after the fact. Apparently this often trips people up.

 

[TheWizard]

It’s my understanding QCDs are deducted as charitable donations and then marked as a QCD.

Well no, there's no actual deduction involved...

 

[target2019]

Well no, there's no actual deduction involved...

I think you hit the nail on the head. QCD can be confusing because it is a Qualified Charitable Distribution, not a "Deduction." So you take a distribution from the IRA, and it goes to a Qualified Charity. After receiving a 1099-R for that account, you or tax-preparer makes an entry that tells the IRS, "Hey, this QCD amount is not taxable, as I gave it away to this worthy entity that the IRS has in their database."

 

[TheWizard]

I think you hit the nail on the head. QCD can be confusing because it is a Qualified Charitable Distribution, not a "Deduction." So you take a distribution from the IRA, and it goes to a Qualified Charity. After receiving a 1099-R for that account, you or tax-preparer makes an entry that tells the IRS, "Hey, this QCD amount is not taxable, as I gave it away to this worthy entity that the IRS has in their database."

Correct.
And whether your QCD goes entirely to one charity or is divided amongst several, the IRS only needs to know the total on form 1040.

Sadly, for folks under age 70.5, only taxable funds can be donated, but then DEDUCTED on schedule A.

I'm thinking it would be better if Congress changed things to allow QCDs starting at age 59.5...

 

[braumeister]

I'm thinking it would be better if Congress changed things to allow QCDs starting at age 59.5...

Better for whom? They've been letting you defer the taxes all these years, waiting for you to take the money out and make it taxable, even forcing you to do it with RMDs. They certainly don't want to see you give it all to charities now with no tax consequences.

I've been happily QCD-ing for years in amounts a little greater than what the RMD would be, but that does take a bit of planning.

 

[TheWizard]

Better for whom? They've been letting you defer the taxes all these years, waiting for you to take the money out and make it taxable, even forcing you to do it with RMDs. They certainly don't want to see you give it all to charities now with no tax consequences.

Sounds reasonable except that the rules have *always* allowed charitable donations to be excluded or deducted from AGI one way or another.

So plan B for someone in their 60s who wants to donate $1000 might be to withdraw $1000 from their tIRA as a normal distribution and then donate the full amount.
Then deduct that $1000 under gifts to charity on schedule A.

Two disadvantages to plan B:
1)the amount withdrawn from tIRA for charity adds to AGI, thus impacting IRMAA at some point.
2)under current tax law with $10k SALT limit and relatively high Standard Deduction, many folks doing smaller charitable contributions will still be better taking SD rather than itemizing, thus losing the tax deduction from the charitable contribution...

 

[Dash man]

Well no, there's no actual deduction involved...

Oh well…I have two years before I have to worry about it.

 

[Involuntary Retiree]

"Are you sure about that limitation? If so, is this different from deducting a charitable contribution to a religious organization that has not been "government approved" as a 501(c)(3)."

I was sure, but I was also wrong.

QCDs are defined in 26 USC 408(d)(8), which says in relevant part:

"which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2))"

Section 170 seems to include certain religious organizations.

Thank you. I researched the 501(c)(3) question within the context of charitable contributions deductions to my church a few years ago. The QCD issue appears to parallel that issue.
My DH and I are a few years out from QCDs, though, so the issue is inapplicable at the present time.

 

[audreyh1]

Sounds reasonable except that the rules have *always* allowed charitable donations to be excluded or deducted from AGI one way or another.

So plan B for someone in their 60s who wants to donate $1000 might be to withdraw $1000 from their tIRA as a normal distribution and then donate the full amount.
Then deduct that $1000 under gifts to charity on schedule A.

Two disadvantages to plan B:
1)the amount withdrawn from tIRA for charity adds to AGI, thus impacting IRMAA at some point.
2)under current tax law with $10k SALT limit and relatively high Standard Deduction, many folks doing smaller charitable contributions will still be better taking SD rather than itemizing, thus losing the tax deduction from the charitable contribution...

Unfortunately that doesn’t reduce your AGI. It reduces your taxable amount, big difference. Things like IRMAA and NIIT are based on AGI, Schedule A deductions don’t count at all.