• QCDS AND ROTH CONVERSIONS: TODAY'S SLOTT REPORT MAILBAG

  • By Sarah Brenner, JD
    IRA Analyst

    Question:

    My sister is 72 years old and quite philanthropic. Much of her traditional IRA RMD she donates to various charities.

    Is it possible for her to instruct the IRA trustee to send the money directly from her IRA account to the charities?

    How will the charities acknowledge receipt from my sister so she can deduct the donations on her taxes? Is she still taxable on the RMD directed to the charity?

    Keep up the great work and thank you.

    Edward

    Answer:

    Hi Edward,

    It is great that your sister is charitably inclined. If she is already donating funds distributed from her IRA to charity, she may be a good candidate for Qualified Charitable Distributions (QCD). With a QCD the funds would be transferred directly from her IRA to the public charity of her choice. She must be age 70 ½ or older as of the date of distribution. Your sister is well above this threshold, but she is limited to  $100,000 annually. She can simply instruct the IRA custodian to do the QCD and the charity should provide her with the necessary documentation to acknowledge the gift. She would then claim the QCD on her federal income tax return. The QCD will not be included in her income and can satisfy her required minimum distribution (RMD) for the year.

    Question:

    I have a client who is 65. In 2018 she converted $100,000 of her IRA to a new Roth IRA. Taxes were paid from other funds.

    May she take the converted $100,000 from the Roth now even though she has NOT held it for 5 years in the Roth??

    Answer:

    The converted funds are available to your client both tax and penalty free. The taxes on the funds were already paid in 2018 when the conversion happened and there is never a 10% penalty on distributions of converted funds when the Roth IRA owner is over 59 ½. Lastly, the client is looking to withdraw the original conversion. Distributions from Roth IRAs are subject to a set of ordering rules. Under those rules, the converted amounts are distributed before earnings on those amounts.

    https://www.irahelp.com/slottreport/qcds-and-roth-conversions-todays-slott-report-mailbag