Donor Advised Funds/Inherited IRA

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Topic Author
Hardlearning
Posts: 4
Joined: Mon Jun 26, 2017 7:59 pm

Donor Advised Funds/Inherited IRA

Post by Hardlearning »

I’m interested in creating a DAF but would like to know if it is advisable to use the stock held in an inherited IRA to fund the account. I inherited this account about 13 years ago when my sister passed away and have been taking the minimum distributions each year. It is my understanding that this type of account cannot be used for a QCD even after I reach 70 1/2, which is a few years away.

We are currently using the QCD for donations out of my husband’s IRA requirements. We do not itemize our taxes so taking a charitable tax deduction is probably not available to us. However, reducing any capital gain and income from the current RMD would be of benefit. Would it be worthwhile to open a DAF or simply donate the stock to the charities of my choice directly? Any pitfalls or benefits would be appreciated. Thank you.
Silk McCue
Posts: 6048
Joined: Thu Feb 25, 2016 7:11 pm

Re: Donor Advised Funds/Inherited IRA

Post by Silk McCue »

Once you are 70.5 you absolutely can make QCDs from an inherited IRA. What you can’t do with an inherited IRA is convert it to Roth unless you are the spouse.

You don’t receive Capital Gains from the RMD. That is simply ordinary income. You can’t move the funds/stocks directly from the inherited IRA but would have to withdraw the funds and then donate. You would not likely want to do that.

Directly donating stocks/holdings to the charity from the IRA isn’t possible without tax consequences until you do so as QCDs in the form of a check when you reach 70.5.

Cheers
shess
Posts: 1323
Joined: Wed May 17, 2017 12:02 am

Re: Donor Advised Funds/Inherited IRA

Post by shess »

Hardlearning wrote: Wed Nov 24, 2021 11:57 am I’m interested in creating a DAF but would like to know if it is advisable to use the stock held in an inherited IRA to fund the account. I inherited this account about 13 years ago when my sister passed away and have been taking the minimum distributions each year. It is my understanding that this type of account cannot be used for a QCD even after I reach 70 1/2, which is a few years away.

We are currently using the QCD for donations out of my husband’s IRA requirements. We do not itemize our taxes so taking a charitable tax deduction is probably not available to us. However, reducing any capital gain and income from the current RMD would be of benefit. Would it be worthwhile to open a DAF or simply donate the stock to the charities of my choice directly? Any pitfalls or benefits would be appreciated. Thank you.
You cannot direct your QCD to a DAF or to a foundation, that is not allowed.

There is no way to donate stock in an IRA to charity directly. Also, the capital gains on stocks in an IRA are irrelevant, it's just value within the IRA, it doesn't matter how that value was accumulated. Things in the IRA have to be sold and come out as cash (either to you as a distribution, or to charity as a QCD).

I see some sites which want to say you could take the distribution as cash and donate that to a DAF. True as far as it goes, but I'm having troubles seeing where that could work out better for you taxwise, because of the standard deduction. It might work out for someone who was already itemizing, though.

I would step back and look at your long-term goals, here. For instance, if your goal is to get rid of the inherited IRA, then look at the rate you'll be paying for those marginal dollars. If it's just a matter of N% this year or N% next year, then you might consider taking more than the RMD up to the next tax bracket to run the account down. You could put the result in a DAF, because while that would not make your tax situation BETTER, it also doesn't really make it worse. Or use it to buy some shares in a taxable account and later you can give them away.
Topic Author
Hardlearning
Posts: 4
Joined: Mon Jun 26, 2017 7:59 pm

Re: Donor Advised Funds/Inherited IRA

Post by Hardlearning »

Thank you both, shess and Silk McCue! That’s exactly what I needed to know. Somehow the pieces were not fitting together and I needed the education. Appreciate you help.
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