RMD as a Charitable Distribution

[redtuna]

I am 76 years old and required to take a $10,000 RMD from my Vanguard IRA.I am also donating this money to a recognized charity.In the past I would cash $10,000 from a non -IRA Vanguard fund,write a check to the charity and itemize the deduction on my 1040.
But now I am considering making Qualified Charitable Distribution instead,donating $10,000 worth of Vanguard mutual funds instead. In this case I can't itemize the donation on my 1040. Is there any way which is the better way to donate for income tax purposes?

[jebmke]

The Qualified Charitable Donation is generally the preferred method.

[sport]

A QCD is better than an itemized deduction. It counts towards your RMD. So, if your RMD was 50K, your 10K donation reduces the taxable withdrawal to 40K. Make sure that the donation goes directly from your IRA to the charity. If you take the distribution in cash, and then donate it to the charity, it will not meet the requirements for a QCD. If your other deductions are less than the standard deduction, you can take the standard deduction and still reduce your taxable RMD by the amount of the QCD. Depending on your AGI, the QCD may also reduce the amount of taxes on your social security. It may reduce state income taxes as well.

[niagara_guy]

I did my first QCD in 2021. freetaxusa tax software didn't do the QCD correctly (ok, might be user error) so I did it manually. I am not yet 72 so no RMDs yet. Make sure you follow the rules, get a letter from charity saying you got nothing in return for donation (in case IRS audits you later).

I agree QCD is better than itemized deductions and will be doing more in the future. If you use a tax advisor it might be good to run it by him.

[Alan S.]

I am 76 years old and required to take a $10,000 RMD from my Vanguard IRA.I am also donating this money to a recognized charity.In the past I would cash $10,000 from a non -IRA Vanguard fund,write a check to the charity and itemize the deduction on my 1040.
But now I am considering making Qualified Charitable Distribution instead,donating $10,000 worth of Vanguard mutual funds instead. In this case I can't itemize the donation on my 1040. Is there any way which is the better way to donate for income tax purposes?

Just to be clear, while an in kind distribution to the charity is allowed, it will be far less complex and error prone for you to sell the mutual funds in your IRA, and then have a QCD check made out to the charity. This also saves the charity from having to sell the shares. While you may have donated appreciated shares in the past from your taxable brokerage account, a QCD should be made in cash.

[willthrill81]

My dad does QCDs from his traditional IRA. At my recommendation, he does so BEFORE he takes the remainder of his RMD. It's as simple as a phone call to his brokerage, and they send the charity a check. He's not taxed whatsoever on the QCD, which would not be the case if itemized a charitable deduction since he and my mom take the standard deduction.

[dual]

A QCD is far better than a deduction. It directly reduces your taxable income with no exclusions. In most states, including my high tax California, it also reduces your state taxable income. I did some research and according to table 1 of this document,

https://sgp.fas.org/crs/misc/R43861.pdf

it is not added back to your adjusted gross income to compute the IRMAA for Social Security payments.

[rick51]

Related issue: what is rationale for not allowing QCD to include non-deductible IRA contributions? I can see why the taxpayer would not want to do it because it is a tax free distribution from the IRA that gets lost as a potential deduction.

[jebmke]

Related issue: what is rationale for not allowing QCD to include non-deductible IRA contributions? I can see why the taxpayer would not want to do it because it is a tax free distribution from the IRA that gets lost as a potential deduction.

QCD can only reduce taxable income. Basis isn’t taxable. I think the basis portion can be taken to Schedule A but I’d want to verify in IRS pubs.

[ehh]

Related issue: what is rationale for not allowing QCD to include non-deductible IRA contributions? I can see why the taxpayer would not want to do it because it is a tax free distribution from the IRA that gets lost as a potential deduction.

Mike Piper has a good explanation of taking a QCD from a tIRA which includes both pre-tax and post-tax dollars.

https://obliviousinvestor.com/qualified ... ith-basis/

[Phantoms]

Vanguard had a rough start with IRA QCDs a few years ago, but they now work well. Call an experienced charity for help, they are all getting on board with this. You can find plenty of documentation on the Vanguard site, but here is the essence:

Go to the "sell Vanguard funds" page, and select "send me a check payable to a charity" as your payout option. Do NOT make the check out to yourself, but carefully identify the name of the charity. Vanguard will send you a check that is NOT made out to you as payee; it is mailed to you for delivery to the charity. I keep a photocopy, and enclose a letter of instructions to my charity. Emphasize that this is a cash contribution, and that you cannot accept anything of value in exchange for it.

You do not get a deduction at tax time. Instead, you do not report these contributions as taxable income. So the amount of your benefit is determined by your marginal tax bracket.

Hope this helps.

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (Qualified charitable distributions)

[MarkNYC]

A Qualified Charitable Distribution (QCD) is generally preferable to making a separate charitable contribution, however, taxpayers making QCDs need to be careful with regards to their tax return preparation. The reason is that Form 1099-R gives no indication that a nontaxable QCD is included in the gross distribution amount, so it is easy for a tax preparation mistake to be made.

For example, let's say the RMD amount is $37K and the taxpayer makes a QCD of $6K and takes a check for the remaining $31K. Only $31K should be taxable. But the 1099-R will show $37K as both the gross distribution in box 1 and the taxable amount in box 2a. The tax return should list $37K on Form 1040 line 4a and $31K on line 4b - contrary to the taxable amount on the 1099-R. "QCD" should be written next to line 4b. If the taxpayer is not vigilant, based on Form 1099-R it's easy for the full $37K to get incorrectly reported as taxable on the return, even more so if a third party is preparing the tax return and that third party relies only on the tax documents and is not provided a clear explanation of the facts.

[Artsdoctor]

Here is the Vanguard instruction page you'll find useful.

https://investor.vanguard.com/investor- ... bution-qcd

You're going to want to do:

1. Sell the dollar amount from your mutual fund(s) you'd like to donate. It'll show up in your Settlement Fund.

2. Go through the steps that Vanguard recommends to have the check to the charity sent directly to you.

3. You're going to then send the check to the charity of your choice.

4. I'd recommend following up with the charity to make sure they receive it and then ultimately you'll get a written confirmation from the charity which you'll keep for your tax records.

This can take time logistically so you shouldn't be doing this at the end of December.

[TravelforFun]

A Qualified Charitable Distribution (QCD) is generally preferable to making a separate charitable contribution, however, taxpayers making QCDs need to be careful with regards to their tax return preparation. The reason is that Form 1099-R gives no indication that a nontaxable QCD is included in the gross distribution amount, so it is easy for a tax preparation mistake to be made.

For example, let's say the RMD amount is $37K and the taxpayer makes a QCD of $6K and takes a check for the remaining $31K. Only $31K should be taxable. But the 1099-R will show $37K as both the gross distribution in box 1 and the taxable amount in box 2a. The tax return should list $37K on Form 1040 line 4a and $31K on line 4b - contrary to the taxable amount on the 1099-R. "QCD" should be written next to line 4b. If the taxpayer is not vigilant, based on Form 1099-R it's easy for the full $37K to get incorrectly reported as taxable on the return, even more so if a third party is preparing the tax return and that third party relies only on the tax documents and is not provided a clear explanation of the facts.

I haven't done a QCD yet so your response is helpful. I hope Turbo Tax asks the right questions and take QCD into account.

TravelforFun

[RudyS]

In addition to the process described in the Vanguard link, it is also possible, if you have check-writing set up on your tIRA, to write a check to the charity from the IRA's settlement fund.
There are numerous historical threads where the acceptability of this method to the IRS has been discussed, but by now it seems settled that it's OK. https://ttlc.intuit.com/community/retir ... /00/464614
Vanguard does have a $250 minimum check size though.

[RetiredCSProf]

A Qualified Charitable Distribution (QCD) is generally preferable to making a separate charitable contribution, however, taxpayers making QCDs need to be careful with regards to their tax return preparation. The reason is that Form 1099-R gives no indication that a nontaxable QCD is included in the gross distribution amount, so it is easy for a tax preparation mistake to be made.

For example, let's say the RMD amount is $37K and the taxpayer makes a QCD of $6K and takes a check for the remaining $31K. Only $31K should be taxable. But the 1099-R will show $37K as both the gross distribution in box 1 and the taxable amount in box 2a. The tax return should list $37K on Form 1040 line 4a and $31K on line 4b - contrary to the taxable amount on the 1099-R. "QCD" should be written next to line 4b. If the taxpayer is not vigilant, based on Form 1099-R it's easy for the full $37K to get incorrectly reported as taxable on the return, even more so if a third party is preparing the tax return and that third party relies only on the tax documents and is not provided a clear explanation of the facts.

I haven't done a QCD yet so your response is helpful. I hope Turbo Tax asks the right questions and take QCD into account.

TravelforFun

I have taken QCDs and RMDs for several years and have successfully used TurboTax in entering the amounts. Also, I have a small basis (non-deductible contribution to tIRA), which TT handles. My only issue with TT has been a software error that incorrectly marks non-duplicate IRA distributions (of the same amount, but different account) as duplicates and asks me to delete one.

[celia]

I am 76 years old and required to take a $10,000 RMD from my Vanguard IRA.I am also donating this money to a recognized charity.In the past I would cash $10,000 from a non -IRA Vanguard fund,write a check to the charity and itemize the deduction on my 1040.
But now I am considering making Qualified Charitable Distribution instead,donating $10,000 worth of Vanguard mutual funds instead. In this case I can't itemize the donation on my 1040. Is there any way which is the better way to donate for income tax purposes?

Both methods save you from paying income taxes on $10,000 of your income. And the QCD will benefit you even when you don't have enough deductions to itemize.

The custodian will make out a check to the organization you choose but will mail it to you so you can make a photocopy or scan of it, before you send it (or hand it over) to the charity. (If the charity never gets it, you will know if it was lost between the custodian and you or after you sent it on to the charity.) Since a check is being sent, they will sell shares of whatever you choose in your IRA unless you have enough cash in your settlement fund. Many charities can't accept shares, so giving them cash instead will make it easy for them.

[Silk McCue]

Here is the Vanguard instruction page you'll find useful.

https://investor.vanguard.com/investor- ... bution-qcd

You're going to want to do:

1. Sell the dollar amount from your mutual fund(s) you'd like to donate. It'll show up in your Settlement Fund.

2. Go through the steps that Vanguard recommends to have the check to the charity sent directly to you.

3. You're going to then send the check to the charity of your choice.

4. I'd recommend following up with the charity to make sure they receive it and then ultimately you'll get a written confirmation from the charity which you'll keep for your tax records.

This can take time logistically so you shouldn't be doing this at the end of December.

Step 1 is unnecessary. The funds do not need to go to a settlement fund first. You can can simply distribute the dollar amount desired using any of your funds held in the IRA. I do this at Vanguard annually for my mother.

Cheers

[carolinaman]

I use QCDs for my charitable deductions. Without these charitable deductions to itemize, we now take standard deduction. For us, it results in lower taxes because we reduce our taxable income from RMDs. You probably need to analyze your tax situation to see if this is an advantage to you. If you still itemize deductions, it may be a wash.

[Faith20879]

Here is the Vanguard instruction page you'll find useful.

https://investor.vanguard.com/investor- ... bution-qcd

You're going to want to do:

1. Sell the dollar amount from your mutual fund(s) you'd like to donate. It'll show up in your Settlement Fund.

2. Go through the steps that Vanguard recommends to have the check to the charity sent directly to you.

3. You're going to then send the check to the charity of your choice.

4. I'd recommend following up with the charity to make sure they receive it and then ultimately you'll get a written confirmation from the charity which you'll keep for your tax records.

This can take time logistically so you shouldn't be doing this at the end of December.

What you said agrees with Vanguard's online instructions so I am sure it is correct.
However when we tried to do this from DH's IRA, we didn't see this option. The three options available are 1. To another account, 2. To a linked bank, and 3. Send me a check. We are wondering if we need to unlock something before this option becomes available?

His age qualifies for QCD.

Thanks!

[ee_guy]

Step 1 is unnecessary. The funds do not need to go to a settlement fund first. You can can simply distribute the dollar amount desired using any of your funds held in the IRA. I do this at Vanguard annually for my mother.

At Vanguard, this is the case for mutual fund accounts. Is it also for brokerage accounts or do the funds have to be in the settlement account?

[ee_guy]

What you said agrees with Vanguard's online instructions so I am sure it is correct.
However when we tried to do this from DH's IRA, we didn't see this option. The three options available are 1. To another account, 2. To a linked bank, and 3. Send me a check. We are wondering if we need to unlock something before this option becomes available?

His age qualifies for QCD.

Three possibilities.

-Try and see if you can scroll down one line when requesting a distribution. On my IRA, the line after "send check" is "send check to a charity".
- Make suure you are logged into the DH account and not your account with DH access.
-The other possibility is Vanguard has your DH birthday incorrectly. Check on the DH profile.

[Silk McCue]

Step 1 is unnecessary. The funds do not need to go to a settlement fund first. You can can simply distribute the dollar amount desired using any of your funds held in the IRA. I do this at Vanguard annually for my mother.

At Vanguard, this is the case for mutual fund accounts. Is it also for brokerage accounts or do the funds have to be in the settlement account?

Moms is a Brokerage account and holds a Lifestrategy Fund. The QCD check was cut and mailed without any intervention apart from the initial transaction.

Cheers

[Artsdoctor]

Step 1 is unnecessary. The funds do not need to go to a settlement fund first. You can can simply distribute the dollar amount desired using any of your funds held in the IRA. I do this at Vanguard annually for my mother.

At Vanguard, this is the case for mutual fund accounts. Is it also for brokerage accounts or do the funds have to be in the settlement account?

Moms is a Brokerage account and holds a Lifestrategy Fund. The QCD check was cut and mailed without any intervention apart from the initial transaction.

Cheers

I arranged for a QCD several years ago from my mom's IRA and the check was sent directly to the charity (the IRA was at Fidelity). Vanguard's instructions would suggest that the check--made out to the charity--would be sent to you. However, perhaps you can share your experience with this: would Vanguard mail the check directly to the charity or does it always send the check to the accountholder (made out to the charity)? The website instructions appear to suggest that the check is mailed to you but having the option to send directly to the charity would be great.

[ee_guy]

I arranged for a QCD several years ago from my mom's IRA and the check was sent directly to the charity (the IRA was at Fidelity). Vanguard's instructions would suggest that the check--made out to the charity--would be sent to you. However, perhaps you can share your experience with this: would Vanguard mail the check directly to the charity or does it always send the check to the accountholder (made out to the charity)? The website instructions appear to suggest that the check is mailed to you but having the option to send directly to the charity would be great.

For my account, my home address was hard coded with no option to change.

[Silk McCue]

I arranged for a QCD several years ago from my mom's IRA and the check was sent directly to the charity (the IRA was at Fidelity). Vanguard's instructions would suggest that the check--made out to the charity--would be sent to you. However, perhaps you can share your experience with this: would Vanguard mail the check directly to the charity or does it always send the check to the accountholder (made out to the charity)? The website instructions appear to suggest that the check is mailed to you but having the option to send directly to the charity would be great.

For my account, my home address was hard coded with no option to change.

I’m not aware of any option other than to have it mailed to the address on the account as well.

Cheers

[Alan S.]

Some advantages from having the check mailed to the IRA owner or beneficiary:

1) A copy of the check can be made for future documentation. You can verify if the amount is correct before the charity receives it and cashes it.
2) The check can be directed to a specific individual at the charity or even hand delivered if large enough.
3) A request can be made with the check delivery for the required documentation from the charity.

[fourwheelcycle]

.... The tax return should list $37K on Form 1040 line 4a and $31K on line 4b - contrary to the taxable amount on the 1099-R. "QCD" should be written next to line 4b.

The first time I used QCDs, TurboTax prepared my 1040 properly, adding typed-in QCD initials by line 4b. Nonetheless, I received a CP2000 from the IRS proposing to increase my taxes by the "unreported" amount in line 4b. They did not ask for further documentation of my QCDs, they just said I did not report the missing income.

I wrote back to the IRS very politely, noting my PDF copy of my TurboTax return showed the QCD initials, asking if their copy also showed the initials, and indicating I had receipts from the charities if they desired any further documentation. After a few months I received a notice the CP2000 had been resolved.

I am surprised the IRS would miss the QCD initials, and I am also surprised there is not a labeled box for QCD amounts. Are there other "subtractions" from taxable 1099-R distributions that may go in line 4b, with explanatory initials manually added in the margin?

[fourwheelcycle]

Some advantages from having the check mailed to the IRA owner or beneficiary:

1) A copy of the check can be made for future documentation. You can verify if the amount is correct before the charity receives it and cashes it.
2) The check can be directed to a specific individual at the charity or even hand delivered if large enough.
3) A request can be made with the check delivery for the required documentation from the charity.

Also, my cover letters for several of my Vanguard QCD checks include notes like "Please apply this amount to the Community Dinner program" or "Please apply this amount to the Bob and Sally Jones Bicycle Ride for Cancer team".

[RetiredCSProf]

...

I am surprised the IRS would miss the QCD initials, and I am also surprised there is not a labeled box for QCD amounts. Are there other "subtractions" from taxable 1099-R distributions that may go in line 4b, with explanatory initials manually added in the margin?

Yes. There are other "subtractions" that may go in line 4b.

On my 2021 return, TurboTax added the initials "QCD" on line 4b (Taxable amount of IRA distributions). Also included was Form 8606 showing a basis for nondeductible IRAs and showing, on line 7, the amount of the IRA distributed as an RMD (less the QCDs) and, on line 8, the amount converted to Roth. There is no separate line showing the amount distributed as QCDs. Line 4b includes the QCD amount and the basis amount, combined.

On my 2020 return, TurboTax added the initials "STMT" on line 4a (IRA distributions) instead of adding the initials "QCD" on line 4b. Apparently, the "STMT" referred to Form 8606.

[RetiredCSProf]

Fidelity allows me to send QCD checks directly to a charity with only my name (and no return address) in the donor field. The advantage of donating "anonymously" is that you can avoid having charities sell your identifying information to other charities.

I made the mistake of donating to the Alzheimer's Association last year, and for months on end, my mailbox was flooded with repeated requests for donations to every charity you can think of and some you probably don't even know about -- March of Dimes, Wounded Veterans, Starving Children, Pet Shelters, religious organizations, ... I finally was able to reach Alzheimer's Association on the phone and told them how sorry I am that I am on a fixed income and cannot possibly afford to support all these charities. Since then, the requests have slowed to a trickle.

[sport]

Fidelity allows me to send QCD checks directly to a charity with only my name (and no return address) in the donor field. The advantage of donating "anonymously" is that you can avoid having charities sell your identifying information to other charities.

One of the requirements for a QCD is to have a letter of receipt from the charity if the amount is more than $250. With no address, there will, of course, not be a receipt. This could cause your QCD to be disallowed if you were audited.

[Faith20879]

What you said agrees with Vanguard's online instructions so I am sure it is correct.
However when we tried to do this from DH's IRA, we didn't see this option. The three options available are 1. To another account, 2. To a linked bank, and 3. Send me a check. We are wondering if we need to unlock something before this option becomes available?

His age qualifies for QCD.

Three possibilities.

-Try and see if you can scroll down one line when requesting a distribution. On my IRA, the line after "send check" is "send check to a charity".
- Make suure you are logged into the DH account and not your account with DH access.
-The other possibility is Vanguard has your DH birthday incorrectly. Check on the DH profile.

You are absolutely right. Tried his login and Voila, there it is.
Guess me having access to his is not quite the same. Which is a bummer that I'll not able to do this for him. He detests anything financial.

[mkc]

What you said agrees with Vanguard's online instructions so I am sure it is correct.
However when we tried to do this from DH's IRA, we didn't see this option. The three options available are 1. To another account, 2. To a linked bank, and 3. Send me a check. We are wondering if we need to unlock something before this option becomes available?

His age qualifies for QCD.

Three possibilities.

-Try and see if you can scroll down one line when requesting a distribution. On my IRA, the line after "send check" is "send check to a charity".
- Make suure you are logged into the DH account and not your account with DH access.
-The other possibility is Vanguard has your DH birthday incorrectly. Check on the DH profile.

You are absolutely right. Tried his login and Voila, there it is.
Guess me having access to his is not quite the same. Which is a bummer that I'll not able to do this for him. He detests anything financial.

Do you have Full Agent authority? That requires a notarized form...

[celia]

Some advantages from having the check mailed to the IRA owner or beneficiary:

1) A copy of the check can be made for future documentation. You can verify if the amount is correct before the charity receives it and cashes it.
2) The check can be directed to a specific individual at the charity or even hand delivered if large enough.
3) A request can be made with the check delivery for the required documentation from the charity.

4) A note or letter can accompany the check to earmark it for a specific need or project you choose (rather than going into the charity’s general fund).
5) When I receive the thank you letter/acknowledgement, I staple it to a copy of the check I made earlier and file it with other year-end tax-related receipts. Hopefully this makes it clearer for whoever clears up my estate in case I die before the end of the year.

[Faith20879]

What you said agrees with Vanguard's online instructions so I am sure it is correct.
However when we tried to do this from DH's IRA, we didn't see this option. The three options available are 1. To another account, 2. To a linked bank, and 3. Send me a check. We are wondering if we need to unlock something before this option becomes available?

His age qualifies for QCD.

Three possibilities.

-Try and see if you can scroll down one line when requesting a distribution. On my IRA, the line after "send check" is "send check to a charity".
- Make suure you are logged into the DH account and not your account with DH access.
-The other possibility is Vanguard has your DH birthday incorrectly. Check on the DH profile.

You are absolutely right. Tried his login and Voila, there it is.
Guess me having access to his is not quite the same. Which is a bummer that I'll not able to do this for him. He detests anything financial.

Do you have Full Agent authority? That requires a notarized form...

Pardon me for not being able to give a straight answer. Many many moons ago we did do the notarized forms and had full access to each other's. Then some years later after we migrated to the brokerage, we both lost the access rights and were told to have to do the notarized forms again. Were too busy at the time so didn't bother to follow through. Fast forward a couple of years, without doing anything I suddenly was able to buy/sell from his account again. So... I don't really know what level of rights I actually have at this point.

[mkc]

What you said agrees with Vanguard's online instructions so I am sure it is correct.
However when we tried to do this from DH's IRA, we didn't see this option. The three options available are 1. To another account, 2. To a linked bank, and 3. Send me a check. We are wondering if we need to unlock something before this option becomes available?

His age qualifies for QCD.

Three possibilities.

-Try and see if you can scroll down one line when requesting a distribution. On my IRA, the line after "send check" is "send check to a charity".
- Make suure you are logged into the DH account and not your account with DH access.
-The other possibility is Vanguard has your DH birthday incorrectly. Check on the DH profile.

You are absolutely right. Tried his login and Voila, there it is.
Guess me having access to his is not quite the same. Which is a bummer that I'll not able to do this for him. He detests anything financial.

Do you have Full Agent authority? That requires a notarized form...

Pardon me for not being able to give a straight answer. Many many moons ago we did do the notarized forms and had full access to each other's. Then some years later after we migrated to the brokerage, we both lost the access rights and were told to have to do the notarized forms again. Were too busy at the time so didn't bother to follow through. Fast forward a couple of years, without doing anything I suddenly was able to buy/sell from his account again. So... I don't really know what level of rights I actually have at this point.

I wasn't implying any error on your part. There are many folks (my husband is one) who lost full agent access with the brokerage conversion, despite VG assurances that this would not happen (he actually lost agent access to all our joint accounts as well). Had not heard of anyone getting it back and losing it again at random without any intervention.

Sounds like there are even more access issues than many of us realize