RMD Charity Question

[Edsel]

In these days of huge standard deductions, people aged 70 1/2 and older are directing the RMDs directly to charities.  The tax strategy is obvious:  You don't have to report the income from the RMD, and you don't get to deduct the charity deduction (that most likely you wouldn't be able to anyway).

I understand this strategy is not available unless the taxpayer is over 70 1/2.  My question is whether the diverted charity payment is allowed to exceed the RMD.  In an example:  Jim has an RMD of $2500 - can he divert $3000 to a charity and qualify for the tax break or is he limited to $2500?

[Lee B]

I started making QCD's last year although not in excess of my RMD.

My understanding is that you can make a QCD(s) in excess of your RMD, however the excess amount will not reduce your taxable income,

it will only reduce the account balance against which next year's RMD will be calculated.

Note:  The total of your QCD(s) are limited to $ 100,000 each year.

[Joel]

QCD can be made for any amount up to $100,000.00.  The RMD amount of the total for the year does not reduced your taxable income.   That amount is just not received by the donor thus taxable income would be less by the RMD amount.  The donor can not receive the QCD before it goes to the charity.  It must be sent directly to the charity.

[bbstacker]

Please see: https://www.irahelp.com/slottreport/5-qcd-rules-you-must-know

Item number 4.

[jklcpa]

All good advice above. While the QCD can exceed the RMD, also keep in mind that only amounts that otherwise would have been included in taxable income may be QCD. In other words, the QCD can't include basis or other nontaxable amounts from after-tax rollovers.  Also, can't do this from employer plans. 

[Edsel]

Good discussion and I'm thankful for that. 

However, I'll repeat the original question and hope there is a simple "yes" or "no" answer:

Jim has an RMD of $2500 - can he divert $3000 to a charity and qualify for the tax break or is he limited to $2500?  I may have not presented this well - is his AGI lessened by $2500 or is it lessened by $3000 if he exceeds his RMD with a charitable diversion?

 

[jklcpa]

21 hours ago, Edsel said:

Good discussion and I'm thankful for that. 

However, I'll repeat the original question and hope there is a simple "yes" or "no" answer:

Jim has an RMD of $2500 - can he divert $3000 to a charity and qualify for the tax break or is he limited to $2500?  I may have not presented this well - is his AGI lessened by $2500 or is it lessened by $3000 if he exceeds his RMD with a charitable diversion?

 

 

Jim is allowed to take up to $100K out and tell the custodian to pay it directly to a charity as a QCD , so YES, in your example Jim may take out $3,000 and call it QCD as long as he meets the age requirement, it comes from an IRA, none of it is a return of basis or from a rollover that was funded with after-tax dollars, and it is made payable directly to the charity.

Jim's 1099-R will be issued showing a normal distribution of $3,000, and will be reported on line 4a (what used to be 15a). Then, if the full $3,000 was handled correctly and meets all the criteria above, Jim will report $-0- on line 4b (the old line 15b) with the letters QCD next to that line indicating that it's not taxable. 

So, your answer is "YES", but I wouldn't say the AGI is "lessened" by the extra because, if handled correctly, it isn't included to begin with. Hope that helps to clarify.

The extra amount taken as QCD over the RMD doesn't count toward next meeting the distribution of any future year's RMD, but it may reduce the future RMD that is calculated since the account balance has been reduced by taking a larger distribution now than was required.    

[Catherine]

5 hours ago, jklcpa said:

So, your answer is "YES", but I wouldn't say the AGI is "lessen" by the extra because, if handled correctly, it isn't included to begin with. Hope that help to clarify.

To elaborate:  the distribution is NEVER COUNTED as taxable income to him, so it's also NOT a charitable deduction for him. 

To get a charitable deduction (in addition to having to itemize deductions) he would have to claim the distribution as his own income - and he'd have to get the money personally.  Cleaner in many ways to send it directly to the charity.  No Sch A for him, no $3K in income to claim.

But yes, he can give more than his RMD.  The only effect it has on future RMDs is the lower end-of-year balance to calculate it from.

[Lee B]

We are gaining a lot of circular momentum here, approaching Warp 1.