RMD and CHARITABLE CONTRIBUTIONS

[EA_TAX]

Have a tax client who wants to maximize the tax benefit of using his RMD for charitable contribution. He has the option to either donate his entire RMD or only donate a portion.
Question: What is my best resource to determine the options for this transaction; for example, if there is a maximum limit on using RMD for charitable contribution? and also if the entire RMD is used for charitable, does the amount appear on the front of the 1040 and schedule A ?
thank you
EA_TAX
NY

[origun]

2015 or tax planning for future?

If you're talking about a 2015 return, the distribution (a QCD) must have been made directly from IRA trustee to charity so if client already has the RMD, it's too late for 2015 tax return. I personally did such a transfer and there are definite advantages--lower AGI which affects SS taxability and can also reduce or eliminate a NIIT and other phaseouts. I believe the maximum that can be done as a QCD is $100k. If done properly and client followed the rules, it is entered as an IRA distribution on line 15a, QCD will be printed and then no taxability on line 15b . And...no deduction on Schedule A!

[Burke]

Have a tax client who wants to maximize the tax benefit of using his RMD for charitable contribution. He has the option to either donate his entire RMD or only donate a portion.
Question: What is my best resource to determine the options for this transaction; for example, if there is a maximum limit on using RMD for charitable contribution? and also if the entire RMD is used for charitable, does the amount appear on the front of the 1040 and schedule A ?
thank you
EA_TAX
NY

A qualified QCD appears on Line 15a but not on Line 15b on the 1040. "QCD" should show up next to line 15b. It does not appear on Schedule A nor does it enter into AGI if it is under $100,000. If more than that, the excess would appear both on Line 15b and Schedule A.

[AZ-Tax]

This is not easy task

Have a tax client who wants to maximize the tax benefit of using his RMD for charitable contribution. He has the option to either donate his entire RMD or only donate a portion.
Question: What is my best resource to determine the options for this transaction; for example, if there is a maximum limit on using RMD for charitable contribution? and also if the entire RMD is used for charitable, does the amount appear on the front of the 1040 and schedule A ?
thank you
EA_TAX
NY

In 2015 my client instructed his brokerage firm (very well known one) and they acted like this was the first time they heard of this. Then they messed it up. The TP instructed them not to withhold Fed & St income tax from the charitable contributions for they already w/h from the gross distribution but they w/h anyway so the charities never received the full amount. The 1099-R will NOT reflect any charitable contributions, the contribution will be deducted within the 1099-R worksheet or at least that is how my Pro Series tax software works. 2015 is over but 2016 is available but I would suggest the TP not to wait until Dec 31st.

[Burke]

I have one that does this every year. And they make the check out to the charity. But they send it to the TP for delivery! So she sends it to the charity, and it still qualifies. Can't get them to mail it direct.

[oceanlovin'ea]

My mother does this every year too. In 2013 the credit union handled it correctly. The last 2 years they have transferred the RMD to her savings account and then written the check from there. So the 1099-R does not come with box 2 having zero and then QCD. They do make the check out to her charitable organization.
I am going to have to go to the main office and hash this out. The branch says they don't have the option to mark it as going to a charitable organization.

I am really fed up with this situation. But Burke has it right.

Linda, EA

[AZ-Tax]

I dont know which route is better

Having the custodian mail directly to the Charity or have check mailed to TP for TP to deliver to charity. The least I have to deal with our Pony Express, the better I feel. Why direct deposit into the Charity's account is not allowed is beyond me but maybe that will come to be.

[Roland Slugg]

I'd like to offer a few points about QCDs ... in no particular order:

• The law passed last December making permanent the QCD did not contain any language allowing taxpayers extra time to make a QCD for the year 2015. In order for one to be effective for 2015, it had to be done NLT 12/31/2015.
• A QCD is not limited to an IRA owner's RMD. It can be made in any amount up to the annual limit of $100,000.
• Although a person's RMD may be withdrawn at any time during the year in which he reaches age 70½, a QCD can not be made unless the IRA owner has actually reached age 70½. Thus, if an IRA owner turns 70 on, say, March 20th, 2016, he must wait at least until September 20, 2016 to make a QCD. (This could present a real logistical problem for someone who becomes 70½ on December 30th or 31st.)
• The IRS has not said if checks made payable to the charity but mailed to the IRA owner for delivery to that charity will qualify for QCD treatment. Until the IRS issues guidance about this, it might be wise to insist that the IRA Trustee mail the distribution check directly to the charitable organization.
• If an IRA owner has "basis" in his IRA, the "zero basis" portion is deemed to come out first, leaving all the basis behind in the IRA. This is because the amount that would have qualified as a charitable deduction can only be made from an IRA distribution that would have been fully taxable if the QCD were not used. To this writer this is a surprising and unexpected additional benefit of a QCD.
• If a QCD is $250 or more, the donor should be sure to obtain a letter of acknowledgment from the charity. The QCD does not bybass the rule about that.
• A QCD may be made from any IRA or individual retirement annuity, but not from a simplified employee pension (SEP), a SIMPLE IRA or an inherited IRA.
• The law doesn’t provide a way to correct mistakes. Anyone wishing to make a QCD should make sure his IRA Trustee will do it correctly. Many IRA Trustees, including all the big ones, like Vanguard, Fidelity, etc., have forms to fill out to start the process.

In my opinion QCDs are an excellent choice for charitable-minded IRA owners age 70½ or older. There are several possible tax benefits and no downside. One of the benefits that usually isn't mentioned in articles about QCDs is that a taxpayer who itemizes (on Schedule A), and whose itemized deductions consist largely of charitable contributions, can make most of his contributions via QCDs. In many cases, that might lower the remaining total of itemized deductions down below the standard deduction. If that happens, the taxpayer will actually get a greater deduction, have less taxable income and pay less income tax ... a win-win result.

[Super Mom]

This is great info!! I learn every day!!

[New York Enrolled Agent]

The IRS has not said if checks made payable to the charity but mailed to the IRA owner for delivery to that charity will qualify for QCD treatment. Until the IRS issues guidance about this, it might be wise to insist that the IRA Trustee mail the distribution check directly to the charitable organization.


Roland

Check IRS Notice 2007-7, Q&A 41

[Roland Slugg]

The IRS has not said if checks made payable to the charity but mailed to the IRA owner for delivery to that charity will qualify for QCD treatment. Until the IRS issues guidance about this, it might be wise to insist that the IRA Trustee mail the distribution check directly to the charitable organization.

Roland

Check IRS Notice 2007-7, Q&A 41

Thank you, NYEA. I don't know how you find some of the things you do.

NYEA's reference to Q&A 41 In IR Notice 2007-7 says the following:

Q-41. Is a check from an IRA made payable to a charitable organization described in § 408(d)(8) and delivered by the IRA owner to the charitable organization a direct payment to such organization?

A-41. Yes. If a check from an IRA is made payable to a charitable organization described in § 408(d)(8) and delivered by the IRA owner to the charitable organization, the payment to the charitable organization will be considered a direct payment by the IRA trustee to the charitable organization for purposes of § 408(d)(8)(B)(i).