First year QCD close to New Year's Eve

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chemocean
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Joined: Mon Dec 19, 2016 9:45 pm

First year QCD close to New Year's Eve

Post by chemocean » Tue Nov 05, 2019 11:19 am

Please feel free to comment on my logic.
I turn 70.5 in the second half of December (say 2019). My RMD will push our joint return into the next higher tax rate category. I previously concluded that it would be nearly impossible to meet the delivery requirements to take a 2019 Qualified Charitable Deductions in 2019 during the holiday season (request the QCD from my IRA trustee on the day of that I turn 70.5, receive the check from the IRA trustee and then deliver the check to the charity by December 31, 2019 without paying high next-day delivery charges.). Because it made sense for me to the take my 2019 RMD for the year I turn 70.5 (2019), I was planning to take the entire RMD in 2019.

It just occurred to me that there is another option. I could take the portion of the 2019 RMD that is NOT allocated to charity as a taxable event in 2019 and then request the portion of the 2019 RMD geared towards charity as QCDs early in 2020. In this case, the only delivery constraint would be that the delivery process would be completed by April 15, 2020 in order for me to claim the 2019 QCD as a non-taxable distribution in 2020. Our usual charities would receive their usual annual donation in the New Year. This would probably not make a difference to most non-profits because they are probably on a July 1-June 30 fiscal year.
Any year after I turn 70.5, the QCD could be taken any time during the year and delivery constraints would not apply.

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samsoes
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Re: First year QCD close to New Year's Eve

Post by samsoes » Tue Nov 05, 2019 11:39 am

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fourwheelcycle
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Re: First year QCD close to New Year's Eve

Post by fourwheelcycle » Tue Nov 05, 2019 11:56 am

My 70.5 birthday was also in December (last year). I was able to request QCD checks online through my Vanguard IRA account on my 70.5 birthday. Vanguard reported the QCDs as a distribution from my IRA on the same day. The checks were in my mailbox three days later!

I believe the date reported to the IRS by Vanguard is the only date that counts. When I prepared my taxes with TurboTax, using TurboTax's Vanguard download feature, the only date entered was the date reported by Vanguard. TurboTax did not ask me to enter the date I mailed the checks to my charities, although I did mail them before December 31.

You should check this with your own IRA custodian.

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PalmQueen
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Re: First year QCD close to New Year's Eve

Post by PalmQueen » Tue Nov 05, 2019 12:02 pm

My understanding is that it's the date on the check that matters for QCDs. The date the recipient organization receives or cashes the check is irrelevant.

If you'd like to make QCDs in 2019, I suggest speaking with your brokerage about making that happen. Fidelity and Vanguard, both need minimal lead time to cut the checks.

Hopefully others can validate this - or contradict it if their experience/understanding differs.

prd1982
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Re: First year QCD close to New Year's Eve

Post by prd1982 » Tue Nov 05, 2019 12:07 pm

Two comments:

1. I don't think the charity has to get/cash the check by the end of the year. I think the only requirement is that the FI cut the checks to the charity by the end of the year. You just need to have the acknowledgement letter from the charity before you submit your taxes.

2. If you don't take the RMD until 2020, then I think you will have slightly higher RMD in 2020 than if you took it in 2019. So if you plan for a QCD of 10,000, then your 2019 end of year balance will be 10,000 more that if you took the QCD in 2019. So your 2020 RMD would be 3.77% of 10,000 higher.

At least I think this is how it all works. So I would ask for the checks at the end of 2019. If the FI cuts them in 2019, take the QCD in 2019. Otherwise, take in 2020 along with your regular 2020 RMD+QCD. I think that Morningstar had an article that talked about partial RMDs for the 1st year, but I could not find it.

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BL
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Re: First year QCD close to New Year's Eve

Post by BL » Tue Nov 05, 2019 5:22 pm

I agree with the above suggestions and do likewise.

Another option might be to have a money market, bond, or possibly other fund set up for check-writing privileges, and write and deliver your own checks on your half-birthday to your charities. (There could be similar concerns about when checks are cashed, so maybe not so smart.)

spencer99
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Re: First year QCD close to New Year's Eve

Post by spencer99 » Tue Nov 05, 2019 7:09 pm

OK, my comment is more to highlight a question I think you asked that has not been answered.

Can you roll your first-year (2019) RMD (all or part) forward into the next year (2020)? - yes.

Can you roll your 2019 QCD into 2020 as part of the 2019 RMD distribution taken in 2020? - I think not. I believe that a QCD must be taken in the calendar tax year.

Apologies if this is not the question you asked.

S

prd1982
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Re: First year QCD close to New Year's Eve

Post by prd1982 » Tue Nov 05, 2019 8:16 pm

spencer99 wrote:
Tue Nov 05, 2019 7:09 pm


Can you roll your 2019 QCD into 2020 as part of the 2019 RMD distribution taken in 2020? - I think not. I believe that a QCD must be taken in the calendar tax year.

S
Good point. So perhaps the safest way is:

a. Take the portion of your 2019 RMD that is NOT going to charity in 2019.

b. In Jan 2020, take the rest of your 2019. Have the money go to you. That is not part a QCD.

c. Then take a portion of your 2020 RMD as QCDs. It would be the total of what you planned for 2019 + 2020.

d. Later in 2020, take the rest of your RMD.

So you end up with the desired QCDs, and only pay taxes of the portion of the 2019 & 2020 RMDs not planned for QCDs.

sbaywriter
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Re: First year QCD close to New Year's Eve

Post by sbaywriter » Wed Nov 06, 2019 8:13 am

I found a URL that seems to clarify the question of whether the charity needs to receive/cash the checks before the end of the year for the QCD to be considered to be taken in that year. Or at least clarifies one scenario.

https://www.financial-planning.com/news ... -tax-rules

To summarize, if you get the check mailed to you directly from the IRA custodian (but made out to the charity) in 2019, then the distribution date is the date the custodian cuts the check - I think at Vanguard it is the same business day you make the request and the check is mailed the next day. So the distribution notice sent to the IRS by the custodian will show the distribution is made in 2019.

But if you write the check yourself using the check writing privileges on your IRA, then the IRA custodian does not know about it until the check is cashed, which may not be until 2020 and if so, the distribution notice sent to the IRS will show the distribution was for 2020 instead of 2019.

Silk McCue
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Re: First year QCD close to New Year's Eve

Post by Silk McCue » Wed Nov 06, 2019 8:27 am

prd1982 wrote:
Tue Nov 05, 2019 8:16 pm
spencer99 wrote:
Tue Nov 05, 2019 7:09 pm


Can you roll your 2019 QCD into 2020 as part of the 2019 RMD distribution taken in 2020? - I think not. I believe that a QCD must be taken in the calendar tax year.

S
Good point. So perhaps the safest way is:

a. Take the portion of your 2019 RMD that is NOT going to charity in 2019.

b. In Jan 2020, take the rest of your 2019. Have the money go to you. That is not part a QCD.

c. Then take a portion of your 2020 RMD as QCDs. It would be the total of what you planned for 2019 + 2020.

d. Later in 2020, take the rest of your RMD.

So you end up with the desired QCDs, and only pay taxes of the portion of the 2019 & 2020 RMDs not planned for QCDs.

There are no such restrictions as you are able to donate $100k per year via QCD. In the scenario described you can "double up" on the QCD in 2020 and have that satisfy the balance of the 2019 RMD not yet taken and a portion of the 2020 RMD.

Cheers

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chemocean
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Re: First year QCD close to New Year's Eve

Post by chemocean » Wed Nov 06, 2019 10:30 am

Thank you all for your input. The two take-home points in the responses are:
1) If the custodian issues the check, then the date of record of the distribution is the date that the check was cut,
2) Unlike the first year RMD, the first year QCD probably cannot be rolled over into the next year.

With this information, I plan to ask the custodian to cut the checks on the day that I turn 70.5, which would allow a few days delay during the holiday season and still qualify for the first year QCD.

Silk McCue
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Re: First year QCD close to New Year's Eve

Post by Silk McCue » Wed Nov 06, 2019 10:59 am

chemocean wrote:
Wed Nov 06, 2019 10:30 am
Thank you all for your input. The two take-home points in the responses are:
1) If the custodian issues the check, then the date of record of the distribution is the date that the check was cut,
2) Unlike the first year RMD, the first year QCD probably cannot be rolled over into the next year.

With this information, I plan to ask the custodian to cut the checks on the day that I turn 70.5, which would allow a few days delay during the holiday season and still qualify for the first year QCD.
No to number 2. If you choose to delay all or part of your 1st year RMD to next year you could satisfy it with a QCD as well as doing the same for your second year RMD. As I stated previously you can make a QCD for up to $100k per year. It is not tied to an RMD calendar year.

Your plan to get it done this year works just fine. I just don't want others to come along and reference this misinformation in the future.

Cheers

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