QCD from non spousal IRA

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Topic Author
Zoey
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QCD from non spousal IRA

Post by Zoey » Sat Aug 01, 2020 3:32 pm

My husband has an inherited non spousal ira that he has been taken RMD’s from. He was never permitted to do QCD because it was non spousal. He is now 70 1/2, can he do a QCD now? I find a lot of info on an inherited ira but not specifically a non spousal.

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Flobes
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Re: QCD from non spousal IRA

Post by Flobes » Sat Aug 01, 2020 3:38 pm

Zoey wrote:
Sat Aug 01, 2020 3:32 pm
My husband has an inherited non spousal ira... He is now 70 1/2, can he do a QCD now?
Yes.

123
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Re: QCD from non spousal IRA

Post by 123 » Sat Aug 01, 2020 3:42 pm

Yes, But remember the money taken from an IRA for the year is first applied to the RMD. So if he has already taken his RMD for the year he can't take any more out to use as a QCD. If he's 70.5 and has yet to take an RMD he can handle it as a QCD.

Remember that under the CARES Act the requirement to take an RMD for 2020 has been waived.
The closest helping hand is at the end of your own arm.

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Zoey
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Re: QCD from non spousal IRA

Post by Zoey » Sat Aug 01, 2020 3:53 pm

123, I need more info. I thought we could take 100,000 per year for a QCD. So is that only for regular ira's and not what we have? We can only take up to what the required RMD is?

sport
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Re: QCD from non spousal IRA

Post by sport » Sat Aug 01, 2020 4:11 pm

OK, here is how QCDs work with RMDs. The first distributions from the IRA must be the RMD. Part or all of that RMD can be QCDs if the account holder is at least 70.5 years old. If QCDs are part of the RMD, that part is not taxed. After the RMD is complete, additional QCDs can be made tax free, but will not reduce the taxes on the RMD already taken. The limit on QCDs is 100K per year. So, if you want to make QCDs and get the maximum tax benefit, make the QCDs before you use up the RMD.

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Zoey
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Re: QCD from non spousal IRA

Post by Zoey » Sat Aug 01, 2020 4:56 pm

Ok, just so I am clear...If RMD is 25k I can take that 25k as a QCD and no taxes. If RMD is 25k and I want a QCD of 20k I would then pay taxes on 5k. Good? This year is different because there are no RMD requirements. I can take up to 100k..good?

Do you send these checks regular USPS or should I send registered?

sport
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Re: QCD from non spousal IRA

Post by sport » Sat Aug 01, 2020 5:10 pm

Zoey wrote:
Sat Aug 01, 2020 4:56 pm
Ok, just so I am clear...If RMD is 25k I can take that 25k as a QCD and no taxes. If RMD is 25k and I want a QCD of 20k I would then pay taxes on 5k. Good? This year is different because there are no RMD requirements. I can take up to 100k..good?

Do you send these checks regular USPS or should I send registered?
If the RMD is 25K and you want to make 25K in QCDs, you have to make the QCDs before you take out any other money. Then there would be no taxes. If you wanted to make QCDs of 20K, you would want to do that before you took 20K of your RMD. The rule is that the first distributions are RMDs, whether or not they are QCDs. This year, like any other year, you can make QCDs up to 100K.

sport
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Re: QCD from non spousal IRA

Post by sport » Sat Aug 01, 2020 5:14 pm

Zoey wrote:
Sat Aug 01, 2020 4:56 pm
Do you send these checks regular USPS or should I send registered?
I use Vanguard for my IRA. There are two ways I make a QCD:
1. I have Vanguard make out the check payable to the charity. Vanguard mails the check to me via regular USPS. I then mail it to the charity regular USPS.
2. I write a check on a MM fund in my IRA and send it to the charity via regular USPS

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Zoey
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Re: QCD from non spousal IRA

Post by Zoey » Sat Aug 01, 2020 5:30 pm

If you wanted to make QCDs of 20K, you would want to do that before you took 20K of your RMD
But wouldn't that 20k BE part of the RMD? So my thinking is wrong? I thought if I took 20k as a QCD then I would only have to take 5k more to hit the RMD and would only pay taxes on that 5k.

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Re: QCD from non spousal IRA

Post by Alan S. » Sat Aug 01, 2020 6:27 pm

Zoey wrote:
Sat Aug 01, 2020 5:30 pm
If you wanted to make QCDs of 20K, you would want to do that before you took 20K of your RMD
But wouldn't that 20k BE part of the RMD? So my thinking is wrong? I thought if I took 20k as a QCD then I would only have to take 5k more to hit the RMD and would only pay taxes on that 5k.
That is correct. After completing the 20k QCD, you would have 5k left to complete your 25k RMD. Only the 5k will be taxable.

The main point was that if take any non QCD distribution before the QCD in any RMD year, that amount will be taxable and cannot be offset by later QCDs. Of course, in 2020 there are NO RMDs due but you can still do a QCD if you wish without any timing issues. A QCD done this year will not change your taxes.

You would be better off to wait on the QCD until 2021 when RMDs are slated to return. You could offset the taxes due on that RMD by making a QCD in the amount you would have in 2020 plus whatever amount you would do for 2021. As for the charities, they came into this year in decent shape and they will need the funds more next year than this year since the negatives of Covid will have been around for 9 months by the time we enter 2021.

NOTE: QCDs have always been allowed using inherited IRAs, but only once you reach 70.5.

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Re: QCD from non spousal IRA

Post by guslucas » Sat Aug 01, 2020 8:36 pm

I am still a little confused by the "non QCD distribution". I seem to understand that if I make the QCD and RMD distribution at the same time, I won't get the tax benefit on the QCD? Let me give you a real life example on what I plan to do next year: My RMD next year will around $60K; I plan to give a QCD of $10K to my church. Do I need to make the QCD first (say in Jan 21) and then wait (say Feb 21) to make the remaining $50K RMD distribution to not pay taxes on the $10K?

sport
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Re: QCD from non spousal IRA

Post by sport » Sat Aug 01, 2020 9:29 pm

guslucas wrote:
Sat Aug 01, 2020 8:36 pm
I am still a little confused by the "non QCD distribution". I seem to understand that if I make the QCD and RMD distribution at the same time, I won't get the tax benefit on the QCD? Let me give you a real life example on what I plan to do next year: My RMD next year will around $60K; I plan to give a QCD of $10K to my church. Do I need to make the QCD first (say in Jan 21) and then wait (say Feb 21) to make the remaining $50K RMD distribution to not pay taxes on the $10K?
A non QCD distribution is an ordinary distribution that you do not donate to charity. For example, you just spend it. For your example, if you want to get the best tax benefit, you just have to make your donation as part of the first 60K you withdraw from the IRA. The point is that if you take your 60K RMD, and do the QCD after that, the QCD will not reduce the tax on your 60K that you took earlier. The QCD can be any part of the RMD. So, you can donate 10K, and then take 50K. Or, you can take, let's say 20K, then donate 10K, and then take the remaining 30K. Or you can take 50K and then donate 10K. What you do not want to do is take the full 60K without donating it, and then after that, make the 10K QCD.

I hope this makes it clear for you.

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cheese_breath
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Re: QCD from non spousal IRA

Post by cheese_breath » Sat Aug 01, 2020 10:42 pm

Zoey wrote:
Sat Aug 01, 2020 4:56 pm
Ok, just so I am clear...If RMD is 25k I can take that 25k as a QCD and no taxes. If RMD is 25k and I want a QCD of 20k I would then pay taxes on 5k. Good? This year is different because there are no RMD requirements. I can take up to 100k..good?
You can take up to $100K any year. This year is no different in that respect. In your $25K RMD example you can take up to $100K, and the first $25K would count as your RMD (assuming you hadn't taken any of the RMD prior to this).
The surest way to know the future is when it becomes the past.

guslucas
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Re: QCD from non spousal IRA

Post by guslucas » Sat Aug 01, 2020 11:12 pm

sport wrote:
Sat Aug 01, 2020 9:29 pm
guslucas wrote:
Sat Aug 01, 2020 8:36 pm
I am still a little confused by the "non QCD distribution". I seem to understand that if I make the QCD and RMD distribution at the same time, I won't get the tax benefit on the QCD? Let me give you a real life example on what I plan to do next year: My RMD next year will around $60K; I plan to give a QCD of $10K to my church. Do I need to make the QCD first (say in Jan 21) and then wait (say Feb 21) to make the remaining $50K RMD distribution to not pay taxes on the $10K?
A non QCD distribution is an ordinary distribution that you do not donate to charity. For example, you just spend it. For your example, if you want to get the best tax benefit, you just have to make your donation as part of the first 60K you withdraw from the IRA. The point is that if you take your 60K RMD, and do the QCD after that, the QCD will not reduce the tax on your 60K that you took earlier. The QCD can be any part of the RMD. So, you can donate 10K, and then take 50K. Or, you can take, let's say 20K, then donate 10K, and then take the remaining 30K. Or you can take 50K and then donate 10K. What you do not want to do is take the full 60K without donating it, and then after that, make the 10K QCD.

I hope this makes it clear for you.
Thanks, I understand now.

Topic Author
Zoey
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Re: QCD from non spousal IRA

Post by Zoey » Sun Aug 02, 2020 9:15 am

Thanks to all who helped me understand this!! :D

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1210sda
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Re: QCD from non spousal IRA

Post by 1210sda » Sun Aug 02, 2020 9:36 am

Alan S. wrote:
Sat Aug 01, 2020 6:27 pm
Zoey wrote:
Sat Aug 01, 2020 5:30 pm
If you wanted to make QCDs of 20K, you would want to do that before you took 20K of your RMD
But wouldn't that 20k BE part of the RMD? So my thinking is wrong? I thought if I took 20k as a QCD then I would only have to take 5k more to hit the RMD and would only pay taxes on that 5k.
That is correct. After completing the 20k QCD, you would have 5k left to complete your 25k RMD. Only the 5k will be taxable.

The main point was that if take any non QCD distribution before the QCD in any RMD year, that amount will be taxable and cannot be offset by later QCDs. Of course, in 2020 there are NO RMDs due but you can still do a QCD if you wish without any timing issues. A QCD done this year will not change your taxes.
You would be better off to wait on the QCD until 2021 when RMDs are slated to return. You could offset the taxes due on that RMD by making a QCD in the amount you would have in 2020 plus whatever amount you would do for 2021. As for the charities, they came into this year in decent shape and they will need the funds more next year than this year since the negatives of Covid will have been around for 9 months by the time we enter 2021.

NOTE: QCDs have always been allowed using inherited IRAs, but only once you reach 70.5.
Thank you Alan S.

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