I plan to begin QCDs from my Traditional IRA as soon as I turn 70 1/2 and have been unable to find the answer to this specific question (either from Fidelity or the IRS website). This is a piece of our philanthropic plan to “donate” down our Traditional IRAs and reduce the RMDs that come later.
Does anyone know the exact date I can make the QCD if my 70th birthday is June 17, 2023? Is it November 1, November 17, or December 1? I guess what I am asking is - when does the IRS’s 1/2 year clock start? And, if the clock starts the next month because my birthday is in the second half of the month, is the answer different for my wife whose birthday the following year is June 12, 2024?
I do not want to make the QCD too soon only to find out I am stuck with a taxable distribution.
This is not an academic inquiry because, if the clock starts on July 1, the additional 1/2 years pushes my first QCD into 2024.
This is what I would think as well. Except Common Sense sometimes get thrown out the window when the government gets involved with all the nuances. The fact that the IRS does not provide an exact definition /examples bothers me.
I think that if there was some arcane rule about this there would be examples, both from the IRS and the many who write articles explaining the rules. Instead they simple use the phrases at least age 70½, after age 70½, and such.
BUT, I found one other bit that looks interesting. A different phrase appears six times in various examples of filling out the worksheet:
Here are a couple of examples from IRS Pub 590-B 2021 Publication 590-B (irs.gov) on the worksheets to us when figuring RMDs, keeping in mind that the SECURE Act changed the RMD age from 70 1/2 to 72 for those who turn 70 1/2 after Dec 31, 2019:
So, the breakpoint for this calculation is June 30/July 1, 1949 - from which you can infer that the IRS rule appears that age 70 1/2 occurs 70 years and 6 months after you were born. Those who were born in June, 1949 must follow the age 70 1/2 RMD rule, while those born in July 1949 must follow the age 72 RMD rule.
Guess I will stop over-thinking this and simply add 6 months (183 days) to my birthday to reach the 70 1/2 threshold when a QCD won’t result in a taxable event (less certain other criteria that the IRS did clearly define).
Or, instead of counting days, simply use the same day of the month as your birthday, just six months later, adding a day if that gives something impossible like August 30 to February.
The reason that I said ‘6 months’ rather than ‘183 days’ is that Jul 1 to Dec 31 is 184 days, while Jan 1 to Jun 30 is 181 or 182 days, depending on the year. So it appears to me from their example that the IRS uses ‘6 months’ rather than ‘183 days’.
Given your apparent intent to delay the distribution as long as possible, you may have missed the most important point. You now are entitled to wait until you turn 72 before taking required minimum distributions.
My question is about when a QCD from a traditional IRA can be done without it being a taxable event. When the government changed the RMD age to 72, they left the QCD rule at 70 1/2.
My SO and I began donating 2% of our assets annually during the pandemic. It does not sound like much, but it was a significant increase from previous years. We plan to increase that to at least 5% either this year or next. Making those donations via QCDs is a great way to meet our philanthropic goal and reduce our future RMD obligation.
Based on the birthdays you provided in your initial post, I would suggest that you would be safe to make QCDs beginning Dec 18, 2023 and your wife would be safe to begin QCDs on Dec 13, 2024 Since those dates are pretty close to the end of the year, I would suggest that you query your IRA administrator about how to set those QCDs up a few weeks before, so that you can pull the trigger on those dates.
Is that any issue with exceeding the QCD limit other than having the excess funds counted as AGI for purposes of changing the income basis used for Medicare premiums?
MarkR and GWPotter - thank you for your replies and thoughts.
The replies by MarkR and GWPotter start to take this thread in a broader direction, so may have to start a new thread about philanthropy in retirement and the financial planning associated with it. In the meantime though…
Like many of us on these forums, my SO and I are in a fortunate position. Our net worth is in the top 5%, social security/pension cover 100% of our essential expenses, we are frugal, and our tax bracket is 10%. Our life expectancy is about 15 years.
Since we each have traditional IRAs and Roth IRAs, the donations will be managed out of each of them to stay under any IRS limitations. There will also use DAF donations to complete the goal without incurring capital gains.
Our plan will roughly follow the way charitable foundations distribute their funds. Our 5% will be based on a 3 year rolling average. If investment returns average 6-7% as forecast, we will have the same asset value in 15 years and still have donated more than $1MM.
I don’t think we’ll run out of money, exceed the QCD cap, or incur Medicare premium increases. If sometime horrific happens, we can always sell/reverse mortgage the house ($500K+ equity) to access those funds.
FWIW, of course, there are plans in place to cover the loss of SS benefits if one of us dies. And, if we have to skip or reduce donations for whatever reason, we do.
For any lurkers out there, I would just point out that QCDs cannot be made to DAF accounts. I would also point out that contributions to a DAF account can be used to help you go over the standard deduction in a single year, with money that you intend to give over multiple years, so that you can still realize a tax benefit without having to go over the standard deduction every year.
I have not used them, but I am intrigued by the DAF accounts through daffy.org (edited to correct) It seems to be a cheaper alternative to what the larger brokerages offer.
I read this fact on the fidelity website earlier today (I was indeed wondering if I could, over time, drain my IRAs into a DAF someday). They also mentioned a one-time change for 2023 that I don’t quite understand -
“Beginning in 2023, a QCD may be taken to fund a Charitable Remainder UniTrust, Charitable Remainder Annuity Trust, or Charitable Gift Annuity up to a maximum one-time amount of $50,000.”
Well, you could do so by making withdrawals from the IRA and then transferring it to the DAF, but you would owe taxes on the withdrawals, and would have to use the Schedule A deduction to partially offset it, so you give up the QCD benefit of the contribution to bypass your AGI, if you are concerned about things like IRMAA, NIIT, etc. that are based on your AGI, rather than your taxable income.
Yes, the SECURE Act 2.0 (passed as a part of the Omnibus Spending Bill in Dec, 2022) provided the option to do a one-time QCD of up to $50k to those types of charitable giving arrangements, but not to a DAF. Previously, QCDs had not been allowed to these types of arrangements. I will say, it’s not clear that the CRTs that provide income to the trust owner (which is why many people set up a CRT) will qualify to receive a QCD. When I looked into these arrangements, they seemed more complicated and restrictive than I really wanted to deal with.
The goal would be to reduce AGI. Standard IRA withdrawal wouldn’t help, so may as well transfer stock with high (almost entirely) long-term capital gains to the DAF instead.
As an aside, I haven’t filed schedule A in years. Been taking std deduction regularly since it was raised.
