Earliest/Latest date for making that first RMD a QCD

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
One Ping
Posts: 234
Joined: Thu Sep 24, 2015 4:53 pm

Earliest/Latest date for making that first RMD a QCD

Post by One Ping » Mon Jun 19, 2017 4:17 pm

I will be using my RMDs to make QCDs after I must start them at age 70½. I have 3 questions regarding the timing of the first RMD, and in this case the first QCD.

1) The first RMD must be taken during the calendar year you turn 70½, however, say for example, say you turn 70½ on 6/1. Can your first RMD be taken in that calendar year before you actually turn 70½ (5/31 or earlier) or do you have to wait until 6/1 or later?

If you can take your RMD any time during the year you turn 70½, I have another question.

2) If that first RMD will be totally used to fund a QCD, can you make that QCD before you turn 70½ on 6/1?

I also seem to recall that if you wait until the next calendar year to take that first RMD (as long as it's before 4/1), you've lost the opportunity to make that RMD a QCD for that previous, first RMD year.

3) Is that correct?

Hope this is all clear enough ...

I seem to remember this being discussed before, but I cannot find the right combination of search terms to provide the exact answer to these questions.
"Re-verify our range to target ... one ping only."

kaneohe
Posts: 4256
Joined: Mon Sep 22, 2008 12:38 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by kaneohe » Mon Jun 19, 2017 5:57 pm

One Ping wrote:.............................

1) The first RMD must be taken during the calendar year you turn 70½, however, say for example, say you turn 70½ on 6/1. Can your first RMD be taken in that calendar year before you actually turn 70½ (5/31 or earlier) or do you have to wait until 6/1 or later?

yes you can take in yr you turn 70.5 but before you actually turn 70.5 https://www.irahelp.com/forum-post/24776-rmd-rule-when-distribution-made-prior-age-70-12

If you can take your RMD any time during the year you turn 70½, I have another question.

2) If that first RMD will be totally used to fund a QCD, can you make that QCD before you turn 70½ on 6/1?

no, you need to be 70.5 when the QCD is made https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals

I also seem to recall that if you wait until the next calendar year to take that first RMD (as long as it's before 4/1), you've lost the opportunity to make that RMD a QCD for that previous, first RMD year.

3) Is that correct?

??? Wait for Alan S. response

Hope this is all clear enough ...

I seem to remember this being discussed before, but I cannot find the right combination of search terms to provide the exact answer to these questions.

User avatar
dodecahedron
Posts: 3121
Joined: Tue Nov 12, 2013 12:28 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by dodecahedron » Mon Jun 19, 2017 6:18 pm

One Ping wrote:I also seem to recall that if you wait until the next calendar year to take that first RMD (as long as it's before 4/1), you've lost the opportunity to make that RMD a QCD for that previous, first RMD year.

3) Is that correct?


The only issue this appears to raise would be if you expect that the total of your QCD for year 1's RMD (made in year 2 by April 1) plus your QCD for year 2's RMD (made some time in year 2) to exceed the annual $100K limit on QCDs. Otherwise, I don't know why you'd have to reason to care about losing the opportunity to do a QCD during calendar year 1.

User avatar
dodecahedron
Posts: 3121
Joined: Tue Nov 12, 2013 12:28 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by dodecahedron » Mon Jun 19, 2017 7:27 pm

Some really good nitty gritty operational details here:

https://www.kitces.com/blog/qualified-c ... uirements/

Alan S.
Posts: 6779
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Earliest/Latest date for making that first RMD a QCD

Post by Alan S. » Mon Jun 19, 2017 7:50 pm

dodecahedron wrote:
One Ping wrote:I also seem to recall that if you wait until the next calendar year to take that first RMD (as long as it's before 4/1), you've lost the opportunity to make that RMD a QCD for that previous, first RMD year.

3) Is that correct?


The only issue this appears to raise would be if you expect that the total of your QCD for year 1's RMD (made in year 2 by April 1) plus your QCD for year 2's RMD (made some time in year 2) to exceed the annual $100K limit on QCDs. Otherwise, I don't know why you'd have to reason to care about losing the opportunity to do a QCD during calendar year 1.


I agree. The only other impact is that if you pledged $x to the charity every year, the charity will not get a donation in the first RMD year, but they would receive a double donation in year 2.

There is no earliest/latest date for a QCD other than 1/1 and 12/31 for distributions taken in a calendar year. But the RMD for a year is automatically applied against the earliest distribution in that year, so if you do not do your QCD first then your earlier distribution must be small enough to still have enough of your RMD left to cover the amount of your QCD.

Example: RMD 10k, intended QCD 4.
No problem to take out up to 6k without doing a QCD because you still have 4k of your RMD left, enough to cover the QCD and still be taxed on only 6k for that year.

Now say that this example above is to be applied to your first RMD distribution year which is deferred to year 2 and also to your year 2 RMD. Since you must distribute 20k in year two and 8k must be as a QCD, you could take your pre 4/1 year 1 RMD of 10k without a QCD. Then prior to year end you must take out another 10k so you would next do an 8k QCD and 2k non QCD distribution before year end. You would get a single 1099R showing 20k and would report 20k on line 15a, 12k on 15b and enter "QCD" next to 15b. Or you could do the entire 8k QCD with your pre 4/1 distribution and the charity gets your full two year donation early in the year.

Yet another option if you want the charity to get their year one donation in that year is to do a 4k QCD in year one, then take out another 6k by 4/1 to complete the year one RMD. Then by year two end take out 10k with 4k as QCD. Your year 2 1099R will show 16k for line 15a and you would report 12k on line 15b with QCD written next to 15b. All the taxable income of 12k would be in year two, and the charity gets 4k each year.

In other words, while you do NOT have to take out your QCD first, if you don't you risk messing up and having some of your RMD that you wanted to be non taxable subject to tax. There is no need to give up flexibility on the first year RMD, but very careful planning is needed to get your taxable income to where you want it in each year and your QCDs to be donated in the amount and time you wish.

User avatar
One Ping
Posts: 234
Joined: Thu Sep 24, 2015 4:53 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by One Ping » Mon Jun 19, 2017 8:07 pm

kaneohe wrote:
One Ping wrote:.............................

1) The first RMD must be taken during the calendar year you turn 70½, however, say for example, say you turn 70½ on 6/1. Can your first RMD be taken in that calendar year before you actually turn 70½ (5/31 or earlier) or do you have to wait until 6/1 or later?

yes you can take in yr you turn 70.5 but before you actually turn 70.5 https://www.irahelp.com/forum-post/24776-rmd-rule-when-distribution-made-prior-age-70-12

If you can take your RMD any time during the year you turn 70½, I have another question.

2) If that first RMD will be totally used to fund a QCD, can you make that QCD before you turn 70½ on 6/1?

no, you need to be 70.5 when the QCD is made https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals

I also seem to recall that if you wait until the next calendar year to take that first RMD (as long as it's before 4/1), you've lost the opportunity to make that RMD a QCD for that previous, first RMD year.

3) Is that correct?

??? Wait for Alan S. response

Hope this is all clear enough ...

I seem to remember this being discussed before, but I cannot find the right combination of search terms to provide the exact answer to these questions.

Thanks, kaneohe. That's what I thought, but wanted to be sure. Thanks for the chapter and verse references.

dodecahedron wrote:The only issue this appears to raise would be if you expect that the total of your QCD for year 1's RMD (made in year 2 by April 1) plus your QCD for year 2's RMD (made some time in year 2) to exceed the annual $100K limit on QCDs.

Thanks, dodec. This is exactly the issue.

So, if I want to do a $100K QCD for my first and second RMDs it sounds like, using my example dates above (70½ on 6/1), I must make the first QCD between 6/1 and 12/31 of the year I turn 70½ and then I can make the second QCD any time in the next calendar year, right?
"Re-verify our range to target ... one ping only."

User avatar
One Ping
Posts: 234
Joined: Thu Sep 24, 2015 4:53 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by One Ping » Mon Jun 19, 2017 8:10 pm

AlanS, thanks for the detailed discussion and examples. While not exactly my situation, it's good to have additional examples to help understanding in the general case.
"Re-verify our range to target ... one ping only."

User avatar
dodecahedron
Posts: 3121
Joined: Tue Nov 12, 2013 12:28 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by dodecahedron » Mon Jun 19, 2017 8:15 pm

One Ping wrote:So, if I want to do a $100K QCD for my first and second RMDs it sounds like, using my example dates above (70½ on 6/1), I must make the first QCD between 6/1 and 12/31 of the year I turn 70½ and then I can make the second QCD any time in the next calendar year, right?


Exactly right. And see the Kitces article I linked above about some of the technicalities to make sure your transaction is clearly documented as happening by 12/31 each year. Given the multiple steps involved and things that are not entirely under your control, it is safest not to leave to this transaction to late December. (It is not like typical deductible charitable donations on Schedule A where you can just write a check and drop it in the mailbox for late pickup on Dec 31.)

User avatar
One Ping
Posts: 234
Joined: Thu Sep 24, 2015 4:53 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by One Ping » Mon Jun 19, 2017 8:25 pm

Yup. No doubt. I will likely start the process within that first week after my 70½-th birthday.
"Re-verify our range to target ... one ping only."

Alan S.
Posts: 6779
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Earliest/Latest date for making that first RMD a QCD

Post by Alan S. » Mon Jun 19, 2017 8:38 pm

One Ping wrote:Yup. No doubt. I will likely start the process within that first week after my 70½-th birthday.


Well, it is clear that you want to donate 100k of QCDs in each year. But if these QCDs are less than your RMD, you also need to determine how much taxable income you want in each year for the excess amount. A QCD can be less than, equal to, or more than your RMD.

User avatar
One Ping
Posts: 234
Joined: Thu Sep 24, 2015 4:53 pm

Re: Earliest/Latest date for making that first RMD a QCD

Post by One Ping » Mon Jun 19, 2017 9:15 pm

Alan S. wrote:Well, it is clear that you want to donate 100k of QCDs in each year. But if these QCDs are less than your RMD, you also need to determine how much taxable income you want in each year for the excess amount. A QCD can be less than, equal to, or more than your RMD.

Yes, 100k per year. That is substantially more than my RMD. At least I won't have to worry about how to apportion for taxable.

In fact, making these QCDs is, at least in part, a way to reduce the total tax burden imposed by the RMDs. These QCDs are, in effect, an early distribution of what otherwise would given as part of a bequest after our deaths. By the time we are done making all the QCDs we envision the account balance will be low enough so the taxes on the remaining RMDs will be much more manageable.
"Re-verify our range to target ... one ping only."

Post Reply