RMD and QCD application

[KT44]

Hello,

Since I only understand with an example, here is the hypothetical question.

The calculated RMD for the year is 40K. Before you take RMD, you give 20K via QCD to an authorized charity. Now the question is

Do I get taxed only on the 20 K that was not given OR am I going to get taxed upon the whole 40K, 20K that I kept as income plus the 20K that I gave as QCD?

I hope I am clear as the idea is to give to 50% RMD to charity and pay tax only on 20K

Dr Kausar Talat

[Bsch4477]

You get taxed on 20K. 

[NCperson]

@KT44 - the whole idea of the QCD is create an incentive for people to give to charity.  the benefit is lower taxes. 

In your example, with no QCD, you would report $40k of income and be taxed accordingly on that.

but by directing $20k of the IRA distribution to a charity, that means only the remaining $20k is reported as income and taxed according, resuling in a lower tax bill than if no QCD occured. 

[Hal_Al]

Using your example, the way it is reported on your tax form is:  $40,000 is reported on line 4a ("IRA Distributions") of form 1040 and $20,000 ("Taxable amount") on line 4b. The notation QCD will appear on the dotted line to the left of line 4b. 

[VolvoGirl]

You will get  1099R for the whole 40,000.  After you enter the 1099R one of the following questions will ask about the QCD.  Then the whole 40,000 will show up on 1040 line 4a but only the 20,000 taxable amount will be on line 4b with QCD written by it.  

[Mike9241]

@KT44 just as a reminder that the money to the charity must come directly from the IRA. you cannot take out $40K in cash and then give $20K to charity. that would not be a QCD.

[pk]

@KT44 , agreeing with my colleagues @Mike9241 , @VolvoGirl , @Hal_Al ,  i just wanted to make sure that  if  you were to direct  your  IRA administrator to use QCD  of  $20,000 out of your RMD of $40,000 as a direct transfer  to a qualified charity, your 1099-R would show  total distribution of $40,000 in box 1  and Taxable amount as $20,000 in Box  2a.   Once you enter these data points , it would amount to you having met the RMD of $40,000 and taxed on $20,000.   This is a direct transfer  from IRA administrator to the Charity and so you do not have to itemize.

Does this answer your question or am I confusing  the situation ?

pk

[dmertz]

@pk, the correct amount in box 2a is $40,000, not $20,000.  A code-7 Form 1099-R with the IRA/SEP/SIMPLE box must always have box 2a equal to box 1 and box 2b Taxable amount not determined marked.  The actual taxable amount is established in the tax return, not on the Form 1099-R.

[pk]

@dmertz , you are correct  ----I had assumed that the admin.  having transferred directly the QCD amount  had all the info to provide the correct taxable amount.  But given the  various and sundry  different situations, that was too simplistic approach .   I stand corrected..   

I see on further looking into the situation  & reading  up  pub 590-B, that  indeed the owner of the account is the only one  that can determine the taxable amount  with the help of form 8606.

Thank you for pointing out my error

pk