Donations for RMD

[jsl11]

I recently read an item in a newsletter from a charitable organization that stated donations made from a traditional IRA would count towards RMD requirments. I was not aware that this was allowed for 2012. Has this provision been renewed for this year? Does it need to be renewed again for next year?

Jeff

[sjelen]

I don't believe it's been extended but it's anticipated it will be. And if someone uses this provision and it's not eventually extended, there's no negative consequence.

[jsl11]

I don't believe it's been extended but it's anticipated it will be. And if someone uses this provision and it's not eventually extended, there's no negative consequence.

Well, there could be a negative consequence. If someone had appreciated securities in their taxable account, they may choose to donate the securities if the direct IRA non-taxable distribution could not be made. However, if a non-taxable distribution could be part of their RMD, the non-taxable distribution would be preferable.

Jeff

[livesoft]

Well, there could be a negative consequence. If someone had appreciated securities in their taxable account, they may choose to donate the securities if the direct IRA non-taxable distribution could not be made. However, if a non-taxable distribution could be part of their RMD, the non-taxable distribution would be preferable.

Jeff

The work-around to that problem is easy: Donate from IRA just in case there is a retroactive law and donate from taxable account, too. I don't see any negative consequences at all.

[Alan S.]

Well, there could be a negative consequence. If someone had appreciated securities in their taxable account, they may choose to donate the securities if the direct IRA non-taxable distribution could not be made. However, if a non-taxable distribution could be part of their RMD, the non-taxable distribution would be preferable.

Jeff

The work-around to that problem is easy: Donate from IRA just in case there is a retroactive law and donate from taxable account, too. I don't see any negative consequences at all.

Basically, that is correct but there have been some reports of certain custodians refusing to do a QCD until Congress authorizes it. If the custodian will do the transfer AND you are subject to RMDs, note that you cannot have taken any earlier distribution in 2012 or the earlier distribution would be the RMD. The transfer to a charity would be treated as follows if your RMD has already been completed:

1) If the QCD is retroactively extended, the transfer to charity will be tax free and not increase your AGI, but you will still have your earlier taxable RMD to report.
2) If QCD expired, the transfer would obviously not be a QCD but would be treated as if it was distributed to you and you then made a charitable contribution from taxable. The transfer would be included in your AGI, could increase SS taxation and if you cannot fully itemize the contribution, your taxable income would be higher.

The past two times the QCD was due to expire, Congress extended it retroactively, and for 2010 you were allowed to make your 2010 QCD through Jan, 2011. Note that there is no special 1099R reporting for a QCD. The taxpayer reports it like a rollover on line 15b.

But the real question now is whether you would NOT take your 2012 RMD, waiting for Congress to repeat the 2010 fiasco. My guess is that if you did not take your RMD, waiting for the QCD and it actually expired, that if you promptly take your 2012 RMD after year end, the IRS would waive the penalty. But you would still have two RMDs taxable in 2013. This "retroactive tax administration" by Congress is causing fits for all taxpayers who do any tax planning, and you can believe that the IRS is pretty hot about Congress' daliance as well. This time a record number of provisions are expiring, and it's possible that if the dysfunction does not end very soon, the 2012 tax filing season will have to be extended beyond 4/15.

[jsl11]

Well, there could be a negative consequence. If someone had appreciated securities in their taxable account, they may choose to donate the securities if the direct IRA non-taxable distribution could not be made. However, if a non-taxable distribution could be part of their RMD, the non-taxable distribution would be preferable.

Jeff

The work-around to that problem is easy: Donate from IRA just in case there is a retroactive law and donate from taxable account, too. I don't see any negative consequences at all.

livesoft,
Your work-around does not work very well for me. I have enough appreciated taxable securities to more than cover the amount I wish to donate. If there is no QCD permitted, I would donate only from the taxable account. If QCD is permitted, I would donate only from the IRA. If I did both, as you suggest, either part of my donation would not be optimized, or I would be donating more than I wish to.

Jeff

[livesoft]

There should be no problem donating more than you wish to. You can donate to a donor-advised fund this year and then just give to charity in future years and not donate again until you wish to.

[BL]

Two days ago I did the charitable thing for my RMD with Vanguard. I had it put in the name of the charity and the check sent to me, their preferred method. I had to answer several security questions (from public information, driver's & auto registrations) in lieu of sending authenticated paperwork, but they handled everything that day and the check is in the mail. They warned me that the law had not passed, but seemed confident that it would be passed. Anyway, it was planned for charity, hopefully as a QCD but otherwise as a regular charitable donation.

[Alan S.]

Two days ago I did the charitable thing for my RMD with Vanguard. I had it put in the name of the charity and the check sent to me, their preferred method. I had to answer several security questions (from public information, driver's & auto registrations) in lieu of sending authenticated paperwork, but they handled everything that day and the check is in the mail. They warned me that the law had not passed, but seemed confident that it would be passed. Anyway, it was planned for charity, hopefully as a QCD but otherwise as a regular charitable donation.

That takes care of your RMD. Now you just have to wait to see what happens with the QCD to determine how you will have to report this on Form 1040. The main thing to know is that if the QCD is extended back to 1/1, you will get the advantage of the QCD, and if it is NOT extended and you would have given this amount to a charity anyway, you are no worse off than you would have been before the QCD became possible.