QCD requirements and tax advantages

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ralph124cf
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QCD requirements and tax advantages

Post by ralph124cf »

Prior to the recent law changes for RMDs from 70.5 to 72, the 70.5 was also the minimum age for QCDs. Has this remained at 70.5, or has it also changed to 72?

I understand that the QCD amount is not included in Income for Federal income tax purposes, but are there any states that tax QCDs as income?

Thanks,

Ralph
jebmke
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Re: QCD requirements and tax advantages

Post by jebmke »

QCD did not changed. It can be done at 70.5.
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sport
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Re: QCD requirements and tax advantages

Post by sport »

QCDs reduce your AGI. This can have other benefits such as lower taxation of social security or lower IRMAA payments. My state income tax calculation starts with the Federal AGI, so I get the state tax savings too.
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BolderBoy
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Re: QCD requirements and tax advantages

Post by BolderBoy »

sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
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One Ping
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Re: QCD requirements and tax advantages

Post by One Ping »

BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
I agree with you, BoulderBoy. I've heard people say this before, but really QCDs don't reduce your AGI, they just keep it from growing due to having to take an RMD.

Po-tay-to / Po-tah-to ... maybe, but it seems fraught with potential for misunderstanding to say they reduce your AGI.
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sport
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Re: QCD requirements and tax advantages

Post by sport »

BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
Right. However, they will reduce the balance in your IRA thus reducing future RMDs.
sport
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Re: QCD requirements and tax advantages

Post by sport »

One Ping wrote: Tue Jan 12, 2021 2:02 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
I agree with you, BoulderBoy. I've heard people say this before, but really QCDs don't reduce your AGI, they just keep it from growing due to having to take an RMD.

Po-tay-to / Po-tah-to ... maybe, but it seems fraught with potential for misunderstanding to say they reduce your AGI.
If you have RMDs to take, making QCDs will result in lower AGI compared to not making QCDs.
MathWizard
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Re: QCD requirements and tax advantages

Post by MathWizard »

One Ping wrote: Tue Jan 12, 2021 2:02 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
I agree with you, BoulderBoy. I've heard people say this before, but really QCDs don't reduce your AGI, they just keep it from growing due to having to take an RMD.

Po-tay-to / Po-tah-to ... maybe, but it seems fraught with potential for misunderstanding to say they reduce your AGI.
They reduce AGI in the following sense:

#1 I take a withdrawal from tax deferred, not a QCD, and send a check to charity, and do not itemize.
or
#2 I have my tax deferred account send a (QCD) check to the same charity.

In #1 need a larger withdrawal from tax deferred than #2 which means my AGI is higher.
Even more so, since I also needed to withdraw more to pay the tax on the money that I sent to the charity.

The biggest thing here is that you already had planned to give money to charity. The QCD just provides
a cheaper way for you to give the same amount, or a way to give more.
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Prokofiev
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Re: QCD requirements and tax advantages

Post by Prokofiev »

MathWizard wrote: Tue Jan 12, 2021 2:11 pm
One Ping wrote: Tue Jan 12, 2021 2:02 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
I agree with you, BoulderBoy. I've heard people say this before, but really QCDs don't reduce your AGI, they just keep it from growing due to having to take an RMD.

Po-tay-to / Po-tah-to ... maybe, but it seems fraught with potential for misunderstanding to say they reduce your AGI.
They reduce AGI in the following sense:

#1 I take a withdrawal from tax deferred, not a QCD, and send a check to charity, and do not itemize.
or
#2 I have my tax deferred account send a (QCD) check to the same charity.

In #1 need a larger withdrawal from tax deferred than #2 which means my AGI is higher.
Even more so, since I also needed to withdraw more to pay the tax on the money that I sent to the charity.

The biggest thing here is that you already had planned to give money to charity. The QCD just provides
a cheaper way for you to give the same amount, or a way to give more.
I think it can be much more than that. Because a QCD reduces both AGI and MAGI, giving $500 to charity can result in $1300-1400 less
less in taxes. How? If you are just over a IRMAA breakpoint, the QCD brings you below that Medicare tier and also saves you fed
and state taxes. You also receive the full standard deduction.
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WoodSpinner
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Re: QCD requirements and tax advantages

Post by WoodSpinner »

Question ....

I am very charitably inclined and plan to take a QCD at age 71 before RMDs are required. Am I correct that the maximum I could donate is $100,000.

Am I also correct that when RMDs begin at 72 I can still take a QCD up to $100,000 even if the RMD is less?

Thanks in advance

WoodSpinner
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celia
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Re: QCD requirements and tax advantages

Post by celia »

WoodSpinner wrote: Tue Jan 12, 2021 9:41 pm I am very charitably inclined and plan to take a QCD at age 71 before RMDs are required. Am I correct that the maximum I could donate is $100,000.
Yes and, if filing MFJ, your spouse can also give up to $100,000 (if he is over 70.5).
Am I also correct that when RMDs begin at 72 I can still take a QCD up to $100,000 even if the RMD is less?
Yes

Note that the eligibility is not that you are in the YEAR you turn 70.5, but you have to pass the DAY you are 70.5.
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1210sda
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Re: QCD requirements and tax advantages

Post by 1210sda »

BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
^^^This.

QCDs are not a tax credit. Without a Required Minimum Distribution, there is no tax benefit for that year.

But, I'm still trying to figure out how the bolded part would work. (or other tIRA withdrawals)
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celia
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Re: QCD requirements and tax advantages

Post by celia »

1210sda wrote: Tue Jan 12, 2021 10:08 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
QCDs are not a tax credit. Without a Required Minimum Distribution, there is no tax benefit for that year.

But, I'm still trying to figure out how the bolded part would work. (or other tIRA withdrawals)
QCDs can only cancel out tIRA withdrawals, not any other income. The tax benefit is that the RMD (that is included as part of a QCD) or other withdrawals for charity get cancelled out, therefore you don't have to pay taxes on them. The only other withdrawals besides QCDs and RMDs are additional withdrawals to taxable or Roth conversions, both of which will be added to your AGI and be taxed.

When you report your taxes, it asks how much the tIRA distribution was and the "code" associated with it. Then it asks if any of it was part of a QCD and reduces the amount by that much. By definition, additional withdrawals to taxable and Roth conversions didn't go to charity, so they will be included in the taxable part. Then the taxable part is added to your AGI.

It is the taxpayer's responsibility to hold on to documentation acknowledging that the charity received the money.
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Re: QCD requirements and tax advantages

Post by jebmke »

1210sda wrote: Tue Jan 12, 2021 10:08 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
^^^This.

QCDs are not a tax credit. Without a Required Minimum Distribution, there is no tax benefit for that year.

But, I'm still trying to figure out how the bolded part would work. (or other tIRA withdrawals)
For someone who is not yet 72 but meets the 70.5 age criterion for QCD they can do a regular withdrawal and make QCDs from that.
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Eagle33
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Re: QCD requirements and tax advantages

Post by Eagle33 »

jebmke wrote: Wed Jan 13, 2021 8:08 am
1210sda wrote: Tue Jan 12, 2021 10:08 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
^^^This.

QCDs are not a tax credit. Without a Required Minimum Distribution, there is no tax benefit for that year.

But, I'm still trying to figure out how the bolded part would work. (or other tIRA withdrawals)
For someone who is not yet 72 but meets the 70.5 age criterion for QCD they can do a regular withdrawal and make QCDs from that.
You can not take a regular withdrawal and make it a QCD. It has to be a QCD withdrawal when you request it. The brokerage firm needs to know so they record it correctly & report it with the correct distribution code on the 1099-R.
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Re: QCD requirements and tax advantages

Post by sport »

Eagle33 wrote: Wed Jan 13, 2021 7:42 pm You can not take a regular withdrawal and make it a QCD. It has to be a QCD withdrawal when you request it. The brokerage firm needs to know so they record it correctly & report it with the correct distribution code on the 1099-R.
Actually, that is not the way it works. The brokerage does not know and does not care if your charity is qualified. So, all QCDs are regular withdrawals. The 1099R shows QCDs as regular withdrawals. They only become QCDs when you fill out your income tax forms. At least, that is how it has worked for my QCDs from Vanguard.
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Eagle33
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Re: QCD requirements and tax advantages

Post by Eagle33 »

sport wrote: Wed Jan 13, 2021 7:59 pm
Eagle33 wrote: Wed Jan 13, 2021 7:42 pm You can not take a regular withdrawal and make it a QCD. It has to be a QCD withdrawal when you request it. The brokerage firm needs to know so they record it correctly & report it with the correct distribution code on the 1099-R.
Actually, that is not the way it works. The brokerage does not know and does not care if your charity is qualified. So, all QCDs are regular withdrawals. The 1099R shows QCDs as regular withdrawals. They only become QCDs when you fill out your income tax forms. At least, that is how it has worked for my QCDs from Vanguard.
Thanks for correcting my misunderstanding. I have not yet reached 72, but am trying to learn the topic in detail now.
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Re: QCD requirements and tax advantages

Post by scifilover »

Schwab and other brokers offer checkwriting for a TIRA which can be used to make QCDs. You must have cash available in your TIRA and be over 70.5. Using this process you can send a QCD directly to a qualified charity without any brokerage involvement. When you get your 1099R these payments will be reflected in the total TIRA distributions.
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Re: QCD requirements and tax advantages

Post by prd1982 »

scifilover wrote: Thu Jan 14, 2021 8:39 am Schwab and other brokers offer checkwriting for a TIRA which can be used to make QCDs.
Just be sure you mail the check to the charity early in the year so that it is cashed before the end of the year. QCD checks made by the broker are considered made when the check is written. QCD checks using checkwriting are considered made when cashed. Given the problems with the mail this year, I wonder how many charitable checks (QCD and regular) written in Dec were not cashed before the end of the year.

I do my QCD contributions in May. I never met a charity that didn't need money all year long.
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Re: QCD requirements and tax advantages

Post by Uniballer »

I am too young for QCDs, but my octogenarian parents are fully on board. So far they have not needed any of their portfolio money to cover expenses (they are getting a small W2 salary, SS, a small pension, and buyout payments from a business sale (mostly capital gains)) .

They recognize that, even in 2020, using their tIRA money for their desired charitable giving is gradually emptying out their tax deferred accounts while preserving their taxable and Roth accounts, and helping to reduce future RMDs. And in most years reducing the immediate RMD requirements. They are also converting to Roth as long as it doesn't push them out of the 0% capital gains bracket. Their goals are primarily to try to minimize RMDs for whichever of them survives longer, and secondarily to minimize any tax burdens on their heirs.
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Re: QCD requirements and tax advantages

Post by Alan S. »

Eagle33 wrote: Wed Jan 13, 2021 7:42 pm
jebmke wrote: Wed Jan 13, 2021 8:08 am
1210sda wrote: Tue Jan 12, 2021 10:08 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
sport wrote: Tue Jan 12, 2021 12:41 pmQCDs reduce your AGI.
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
^^^This.

QCDs are not a tax credit. Without a Required Minimum Distribution, there is no tax benefit for that year.

But, I'm still trying to figure out how the bolded part would work. (or other tIRA withdrawals)
For someone who is not yet 72 but meets the 70.5 age criterion for QCD they can do a regular withdrawal and make QCDs from that.
You can not take a regular withdrawal and make it a QCD. It has to be a QCD withdrawal when you request it. The brokerage firm needs to know so they record it correctly & report it with the correct distribution code on the 1099-R.
The IRA custodian does not code QCDs any differently than normal distributions. Taxpayer receives one 1099R with the total distributed amount shown, whether QCD or not. The taxpayer then reports the QCD on Form 1040 line 4, in the same manner they would report a rollover, but will show "QCD" next to line 4b rather than "rollover".

For 2021, if you are 70.5 but not yet subject to RMDs, doing a QCD will not change your current taxable income but will reduce the IRA balance somewhat for future RMDs.

But if you want to reduce your current year AGI and taxable income, consider doing the $600 (MFJ limit, for singles it's $300) cash donation from your checking account and claiming the new above the line deduction. You cannot itemize if you claim this deduction, but many people no longer itemize due to the new higher standard deduction. You could max out the new deduction, then if you want to donate more than the deduction limit, donate the additional amount by QCD. You will both reduce your future RMDs AND reduce your current year AGI by up to $600.
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1210sda
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Re: QCD requirements and tax advantages

Post by 1210sda »

Alan S. wrote: Thu Jan 14, 2021 9:40 am
Eagle33 wrote: Wed Jan 13, 2021 7:42 pm
jebmke wrote: Wed Jan 13, 2021 8:08 am
1210sda wrote: Tue Jan 12, 2021 10:08 pm
BolderBoy wrote: Tue Jan 12, 2021 1:36 pm
Just to be perfectly clear, QCDs without either RMDs or other tIRA withdrawals do not reduce your AGI, right?
^^^This.

QCDs are not a tax credit. Without a Required Minimum Distribution, there is no tax benefit for that year.

But, I'm still trying to figure out how the bolded part would work. (or other tIRA withdrawals)
For someone who is not yet 72 but meets the 70.5 age criterion for QCD they can do a regular withdrawal and make QCDs from that.
You can not take a regular withdrawal and make it a QCD. It has to be a QCD withdrawal when you request it. The brokerage firm needs to know so they record it correctly & report it with the correct distribution code on the 1099-R.
The IRA custodian does not code QCDs any differently than normal distributions. Taxpayer receives one 1099R with the total distributed amount shown, whether QCD or not. The taxpayer then reports the QCD on Form 1040 line 4, in the same manner they would report a rollover, but will show "QCD" next to line 4b rather than "rollover".

For 2021, if you are 70.5 but not yet subject to RMDs, doing a QCD will not change your current taxable income but will reduce the IRA balance somewhat for future RMDs.

But if you want to reduce your current year AGI and taxable income, consider doing the $600 (MFJ limit, for singles it's $300) cash donation from your checking account and claiming the new above the line deduction. You cannot itemize if you claim this deduction, but many people no longer itemize due to the new higher standard deduction. You could max out the new deduction, then if you want to donate more than the deduction limit, donate the additional amount by QCD. You will both reduce your future RMDs AND reduce your current year AGI by up to $600.
Thanks Alan. This is what I was trying to say.
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Re: QCD requirements and tax advantages

Post by MtnBiker »

Alan S. wrote: Thu Jan 14, 2021 9:40 am
But if you want to reduce your current year AGI and taxable income, consider doing the $600 (MFJ limit, for singles it's $300) cash donation from your checking account and claiming the new above the line deduction. You cannot itemize if you claim this deduction, but many people no longer itemize due to the new higher standard deduction. You could max out the new deduction, then if you want to donate more than the deduction limit, donate the additional amount by QCD. You will both reduce your future RMDs AND reduce your current year AGI by up to $600.
Alan, I thought the special provision for a $600 MFJ cash donation in 2021 is "between the lines," not "above the line." That is, it adds to the standard deduction but does not reduce AGI for 2021. Can you confirm?
The 2020 deduction is “above the line,” which reduces one’s Adjusted Gross Income (AGI). Because many tax benefits and limits are keyed off the AGI, having a [slightly] lower AGI helps. The 2021 deduction is “below the line,” which doesn’t reduce the AGI, but it also doesn’t compete with the standard deduction. You can take both the standard deduction and this new charity deduction. It’s more “between the lines” — after the AGI but before the standard deduction. Think of it as increasing your standard deduction for one year by the amount you donate up to the cap and subject to those other requirements.

The 2020 deduction is inserted as a new paragraph into the Internal Revenue Code Section 62. Section 62 defines Adjusted Gross Income. The paragraphs in Section 62 adjust the income into the AGI. The 2021 deduction is inserted as a new paragraph into the Internal Revenue Code Section 170 as a special rule for charitable contributions. Because it’s outside Section 62, it doesn’t affect the AGI.
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Carl53
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Re: QCD requirements and tax advantages

Post by Carl53 »

In the year one turns 72, must the QCD be made after the actual date one turns 72 for it to count as toward fulfilling the RMD? I know this was the case when the RMD date was related to age 70.5.
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dodecahedron
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Re: QCD requirements and tax advantages

Post by dodecahedron »

MtnBiker wrote: Thu Jan 14, 2021 8:51 pm
Alan S. wrote: Thu Jan 14, 2021 9:40 am
But if you want to reduce your current year AGI and taxable income, consider doing the $600 (MFJ limit, for singles it's $300) cash donation from your checking account and claiming the new above the line deduction. You cannot itemize if you claim this deduction, but many people no longer itemize due to the new higher standard deduction. You could max out the new deduction, then if you want to donate more than the deduction limit, donate the additional amount by QCD. You will both reduce your future RMDs AND reduce your current year AGI by up to $600.
Alan, I thought the special provision for a $600 MFJ cash donation in 2021 is "between the lines," not "above the line." That is, it adds to the standard deduction but does not reduce AGI for 2021. Can you confirm?
I am not Alan, but it is easy to see from current 1040 that the $300 charitable donation allowed in 2020 for non-itemizers in 2020 is above the line and reduces AGI. (Charitable is line 10b and included in line 10c which is subtract from total income on line 9 to yield AGI on line 11.)

The 2021 donation is essentially the same as 2020 (except that MFJ can now deduct $600).

Edit: Ah, I stand corrected after drinking coffee and actually reading the recent tFB post linked above. It appears that in 2021, charitable donation for non-itemizers will be demoted from its 2020 above the line status.
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Re: QCD requirements and tax advantages

Post by carolinaman »

ralph124cf wrote: Tue Jan 12, 2021 12:35 pm Prior to the recent law changes for RMDs from 70.5 to 72, the 70.5 was also the minimum age for QCDs. Has this remained at 70.5, or has it also changed to 72?

I understand that the QCD amount is not included in Income for Federal income tax purposes, but are there any states that tax QCDs as income?

Thanks,

Ralph
NC used to tax QCD but they changed the tax law and now are same as Feds.
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Re: QCD requirements and tax advantages

Post by sport »

Carl53 wrote: Fri Jan 15, 2021 6:01 am In the year one turns 72, must the QCD be made after the actual date one turns 72 for it to count as toward fulfilling the RMD? I know this was the case when the RMD date was related to age 70.5.
The age for QCDs did not change. It is still 70.5. So, you can make a QCD any time during the year you turn 72. If you want the QCD to reduce the taxes on your RMD, you have to make the QCDs before the RMD is complete.
Carl53
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Re: QCD requirements and tax advantages

Post by Carl53 »

sport wrote: Fri Jan 15, 2021 9:51 am
Carl53 wrote: Fri Jan 15, 2021 6:01 am In the year one turns 72, must the QCD be made after the actual date one turns 72 for it to count as toward fulfilling the RMD? I know this was the case when the RMD date was related to age 70.5.
The age for QCDs did not change. It is still 70.5. So, you can make a QCD any time during the year you turn 72. If you want the QCD to reduce the taxes on your RMD, you have to make the QCDs before the RMD is complete.
Yes a QCD can be made any time past age 70.5, but will it count as part of the initial RMD if made before the actual 72nd BD? or will the full RMD still be required? If 72nd BD is April 1, will QCD made February 1 count as towards fulfilling the RMD?
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Re: QCD requirements and tax advantages

Post by sport »

Carl53 wrote: Sat Jan 16, 2021 5:28 am
sport wrote: Fri Jan 15, 2021 9:51 am
Carl53 wrote: Fri Jan 15, 2021 6:01 am In the year one turns 72, must the QCD be made after the actual date one turns 72 for it to count as toward fulfilling the RMD? I know this was the case when the RMD date was related to age 70.5.
The age for QCDs did not change. It is still 70.5. So, you can make a QCD any time during the year you turn 72. If you want the QCD to reduce the taxes on your RMD, you have to make the QCDs before the RMD is complete.
Yes a QCD can be made any time past age 70.5, but will it count as part of the initial RMD if made before the actual 72nd BD? or will the full RMD still be required? If 72nd BD is April 1, will QCD made February 1 count as towards fulfilling the RMD?
In any year you have an RMD, the first withdrawals from the IRA must be part of the RMD. QCDs can be any part or all of the RMD up to 100K. You cannot rollover any part of the RMD to a Roth IRA. You can take the entire RMD in early January if you wish, even though your 72nd BD is not until later in the year.
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Re: QCD requirements and tax advantages

Post by JackoC »

Alan S. wrote: Thu Jan 14, 2021 9:40 am
For 2021, if you are 70.5 but not yet subject to RMDs, doing a QCD will not change your current taxable income but will reduce the IRA balance somewhat for future RMDs.
I think that cuts most directly to the most important implication of OP's question, the relatively new situation of tax year(s) where you've reached 70.5 but not 72 wrt QCD's. In that period it's not correct to say QCD cuts your AGI: in the baseline case of 'do nothing but what the law requires' you wouldn't have made that IRA withdrawal at all. Once RMD starts QCD is reducing AGI relative to the same baseline of 'do nothing but what the law requires'. For federal tax purposes. At least one state (NJ) would tax the IRA withdrawal regardless of whether it was required and regardless of QCD. As you say, QCD prior to RMD makes the IRA smaller when RMD starts. Although since QCD can be up to $100k, most people could also shrink later RMD's by QCD greater or much greater than RMD in early years of RMD.
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