Should I transfer funds from my SEP IRA into my rollover IRA in order to make QCDs, or can I just stop making SEP contributions and use the SEP IRA account for QCDs?

[smf555]

Most of my retirement funds are in a SEP IRA. I understand that QCDs cannot be made from an "active" SEP IRA.  I'm trying to figure out the best way to use those funds for QCDs when I reach 70 1/2.

[dmertz · Accepted solution]

IRS Notice 2007-7 says the following:

Q–36. Is the exclusion for qualified charitable distributions available for distributions from any type of IRA?

A–36. Generally, the exclusion for qualified charitable distributions is available for distributions from any type of IRA (including a Roth IRA described in § 408A and a deemed IRA described in § 408(q)) that is neither an ongoing SEP IRA described in § 408(k) nor an ongoing SIMPLE IRA described in § 408(p). For this purpose, a SEP IRA or a SIMPLE IRA is treated as ongoing if it is maintained under an employer arrangement under which an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which the charitable contributions would be made.

https://www.irs.gov/pub/irs-drop/n-07-07.pdf

If you made a SEP contribution for 2017, you cannot make a 2017 QCD from the SEP IRA.  You would have to move some of the money from the SEP IRA to another IRA and make the QCD from the other IRA.

[Critter]

Since you cannot make QCD from the active SEP you will need to roll some funds to the other IRA to make the contribution.  Always to a trustee to trustee roll so you don't have issues with the roll over limitations. 

And once you reach 70.5 you cannot make regular IRA contributions any longer ... you must stick with the SEP if you still want to contribute.  Talk to the IRA trustees for more info on rolling the funds.