$100,000 QCD January 2011 | Ed Slott and Company, LLC

$100,000 QCD January 2011

Do all of the following work: Taxpayer took 2010 taxable RMD within last 60 days ahead of the law change, can they now rollover/rollback and make 2010 RMD as QCD in January? Taxpayer who "forgets" (neglects) to take 2010 RMD can avoid 50% penalty by making QCD in January? Taxpayers who have already taken 2010 RMD can effectivley make $200,000 of QCDs in 2011 so long as they make $100,000 in January? Thanks

1) They cannot roll back a prior distribution that is deemed to be the RMD since RMDs are not rollover eligible. They can still make the QCD which will not be taxable, but the RMD already taken out will be taxable. 2) That is correct. They get a break here since they are treated the same as others who specifically waited for Congress to act. Congress took 11.5 months to act and taxpayers now have 1.5 months to make a QCD. 3) Yes, 200k in total actually made in 2011, but 100k taken in January can be designated by the taxpayer to have been made in 2010 with the 2010 QCD not covering the RMD if taxpayer previously distributed the RMD. The 2011 QCD would be a "normal" QCD and could cover the 2011 RMD but here again the taxpayer must make the 2011 QCD prior to taking any other IRA distribution if they want the 2011 QCD to cover the RMD. The IRS has not had time to develop reporting instructions for the 2010 QCD taken in January. A taxpayer making a QCD in January should advise the IRA custodian which year the QCD is for as I expect the custodians will be asked to identify the proper year. Otherwise, the 2011 RMD could be affected if there is doubt as to which year the January transfer applies to. Due to all this, I recommend that taxpayers wishing to make a 2010 QCD do so prior to the end of the year. That will avoid some of the inevitable confusion and additional reporting if they wait until January. NOTE: I certainly would not count on it, but there is a possibility that the IRS could provide some relief to the situation in 1) above based on the assumption that many taxpayers simply gave up waiting for Congress to act and thought that the QCD was eliminated. So stay tuned to this situation.

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