Qualified Charitable Distribution Tax Question

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Peter Foley
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Qualified Charitable Distribution Tax Question

Post by Peter Foley » Sat Nov 16, 2019 3:24 pm

At a recent Boglehead's meeting there was a discussion regarding RMD's and Qualified Charitable Distributions.

From the Michael Kitce's Blog:
The benefit of doing a QCD from an IRA is that the distribution comes out of the IRA without any of the tax consequences that would otherwise apply to a withdrawal (i.e., it is excluded from income altogether). Notably, there is no charitable deduction for making the QCD contribution to the charity, but only because by definition it was already entirely pre-tax (having come directly from a pre-tax IRA).
In addition, to the extent that the IRA owner had a Required Minimum Distribution (RMD) obligation for the year, the QCD is deemed to satisfy the RMD, even though the QCD is not taxable as an RMD otherwise would have been. And since an IRA owner must be age 70 ½ in order to do the QCD, by definition he/she will also have at least some RMD due for that tax year as well!
Example 1a. Harold just turned 71 years old and has an IRA with a $152,000 account balance. His RMD for the current year is $5,736. If Harold does a $5,000 QCD to his favorite charity, it will satisfy $5,000 of his RMD obligation (without any tax liability), leaving him with only another $736 to distribute (and report in income for tax purposes).
Example 1b. Continuing the prior example, if Harold instead did a $6,000 QCD from his IRA to a qualifying charity, his entire RMD will be satisfied (as his QCD is more than enough to cover the RMD obligation), and again there will be no tax consequences to the entire QCD (assuming it was otherwise eligible).

Question related to Example 1b. While the QCD withdrawal/distribution exceeds the RMD, the entire $6000 withdrawal is not taxable income. Is the amount that exceeds the RMD, $234.00, deductible from other earned income in that year? A participant in the discussion implied that it would be.
I can't find anything to support that assumption. Can the $234.00 be used as an itemized deduction on Schedule A? It is pre-tax money so I expect not.
Last edited by Peter Foley on Sat Nov 16, 2019 3:43 pm, edited 1 time in total.

sport
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Re: Qualified Charitable Distribution Tax Question

Post by sport » Sat Nov 16, 2019 3:42 pm

QCDs are not deductible on Schedule A. If the QCD exceeds the RMD, it is just more IRA money withdrawn that is not taxable. If you do not define it as a QCD, then you could deduct it. However, there does not seem to be any reason for doing that. In many cases it would cause you to pay more taxes without any benefit for doing so. In short, you cannot claim a QCD and deduct the same money on Schedule A.

Silk McCue
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Re: Qualified Charitable Distribution Tax Question

Post by Silk McCue » Sat Nov 16, 2019 3:43 pm

Peter Foley wrote:
Sat Nov 16, 2019 3:24 pm

Question related to Example 1b. While the QCD withdrawal/distribution exceeds the RMD, the entire $6000 withdrawal is not taxable income. Is the amount that exceeds the RMD, $234.00, deductible from other earned income in that year? A participant in the discussion implied that it would be. I thought it would be an itemized deduction on Schedule A.
Since the QCD is fully distributed tax free (up to $100k per year - think about that in the situation where the RMD is $5,736) and effectively disappears as income you cannot now double dip to have a portion of that distribution also count towards itemized giving, nor can it be deducted from earned income.

Cheers

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Peter Foley
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Re: Qualified Charitable Distribution Tax Question

Post by Peter Foley » Sat Nov 16, 2019 3:46 pm

Thanks sport. I edited my post while you were writing. That clarifies it for me - you can donate IRA money to charity and get an itemized deduction only if you do not define it as a QCD.

Thanks Silk. Your explanation makes sense to me too.

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