In order for QCDs to count as part of my RMD and reduce my AGI do they have to be executed BEFORE any funds are taken from the IRA for personal use?

[Original-user]

In early January 2019, I effected QCDs equal to approximately 60% of my RMD for this year. In mid-January 2019, I took a personal distribution from my IRA equal to approximately 4% of my RMD. Now, in late January, I wish to make an additional charitable distribution from my IRA equal to approximately 4% of my RMD.

I'm being told by my financial advisor that I cannot initiate an additional QCD that would reduce my AGI since I have already received a distribution for personal use. Is that correct -- i.e., can one not initiate a QCD that both applies to the RMD and reduces AGI after having begun to receive personal distributions from the IRA in a given year (even if the RMD amount is not exceeded)?

[dmertz · Accepted solution]

Either you misunderstood what the financial advisor said or the financial advisor is confused.  (I suspect the latter.)  QCDs always are excluded from your AGI.  The fact that there was an intervening distribution that was not a QCD is entirely irrelevant to the tax treatment of the distributions.

Also, to be a QCD it doesn't matter whether the distribution counts against your RMD or not, although in this case you've mentioned distributions totaling only 68% of your RMD, they all count against your RMD.  The only requirements to be a QCD is that the money be transferred directly to the charity by the IRA trustee, that you are age 70½ or over at the time of the distribution from the IRA, that the charitable contribution would meet the requirements to be reportable as a deductible contribution on Schedule A were it not fro the fact that it was a QCD, and your total QCDs for the year do not exceed $100,000.

[Original-user]

Thank you for your prompt and helpful response.

[ppfan]

According to Kiplinger Tax Advice, the prior answer is incorrect.  Per Kiplinger:  The first dollars out of an IRA are considered to be the RMD until that amount is met. If you want to do a QCD of $10,000 that will count toward a $20,000 RMD, be sure to make the QCD move before taking the full RMD out.  See item 10 in following link:  https://www.kiplinger.com/slideshow/retirement/t045-s004-9-smart-strategies-for-handling-rmds/index....

I have seen different answers to the original question so get your own tax advice from a professional tax advisor.

[dmertz]

The answer I provided was specific to this individual's situation.  In the case of the original question, only 64% of the individual's 2019 RMD had been satisfied (60% by QCD and 4% by non-QCD) prior to wanting to make a QCD of additional 4% of the total RMD.  The individual appears to have interpreted the financial planner as indicating that no QCD can be made after an intervening non-QCD distribution, but there is no requirement that QCDs be made prior to other distributions.  Certainly that QCD of 4% of the RMD would not offset the taxable amount of the 4%-of-RMD distribution already made that was not a QCD, but nowhere does the question ask if that would be the case.  Upon making the QCD of 4% of the RMD, a total of 68% of the RMD would have been satisfied and 32% of the individual's RMD would have still remained to be satisfied for the year.  Whether or not that 32% would be satisfied by making additional QCDs would determine the total amount that would be includible in AGI, but there could not be any less the 4% includible in income.

If the additional 4%-of-RMD was not distributed as a QCD, that portion of the RMD would still have to be satisfied by a non-QCD distribution, adding to AGI.  By instead making that 4%-of-RMD a QCD, AGI is reduced from what it would otherwise end up being for the year.  It's also possible that this individual had multiple IRAs and the original 60% of RMD satisfied the entire RMD for the account from which it was made, but because IRA RMDs are permitted to be aggregated and taken from any of the individual's IRAs, the additional 4%-of-total-RMD QCD made from this account would still reduce the AGI from what it would otherwise be since the amount of RMD that remained to be satisfied for the other IRAs would be reduced.

The fact that the non-QCD distribution was 4% of the total RMD and the additional QCD was also to be 4% of the total RMD might lead one to suppose that there was some desire to have one offset the other, but that would indeed just be a supposition.  Nothing else in the question supports that supposition and other details in the question even suggest that this supposition would be incorrect.