IRS No Charitable IRA Do-Over

Submitted by Gregory C Smith on Mon, 2011-01-10 16:10

Re: Wall street journal article on 1-7-2011 IRS: No Charitable IRA do-over
Question: Client took 2010 RMD in December, 2010 BEFORE law change 12-17-2010. Upon knowledge of law change, client, with charitable intentions, after depositing RMD in his checking account, wrote a check payable to IRA mutual fund and returned the check in 2010. Apparently, IRA mutual fund took the personal check. In January, 2011, IRA mutual fund, pursuant to client directions, distributed (what was thought to be the 2010 RMD) to charities.

Obviously, law indicates that RMD cannot be rolled over etc. to avoid income taxation. Several questions: Did client make his 2010 RMD? What effect did the return of the funds to the IRA mutual fund in 2010 have? Will the distribution to charities in January, 2011 be presumed to be for the 2010 tax year or the 2011 tax year?

Question: Does anyone anticipate any additional IRS information on this issue and might the IRS allow a charitable IRS do-over?

Thank you for any insights.



Submitted by Jose Morales on Mon, 2011-01-10 17:56

The client did make his 2010 RMD with the initial distribution. However, the client then made an excess contribution when he completed a rollover of the RMD amount.

The QCD taken in 2010 will count for tax year 2010, but will not offset the RMD requirement, nor will it correct the excess contribution the client made.

So as it stands this person still has an excess contribution which must be corrected, with earnings attributable, by his tax filing due date (including extensions).



Submitted by Alan Spross on Tue, 2011-01-11 03:58

As expected, the IRS has confirmed that there is no relief in the tax bill to allow 2010 RMDs already taken to be rolled back to enable the QCD to cover the RMD. Congress waited 50 weeks into 2010 to act, and the taxpayer in the article only waited 49………..so he is out of luck:

http://online.wsj.com/article/SB1000142405274870373070457606593134823813…



Submitted by Lewis Young on Wed, 2011-01-12 16:56

Alan,
In reference to the last paragraph of the Wall Street Journal article where Deutsche Bank’s Blank Lark Christerson states” “This won’t help the many who already took their 2010 RMDs,” “But it does allow those who really want to help charities to double up in 2011, provided one of the gifts is made in January and they make the appropriate election.”

Is she talking about someone who didnt take their 2010 RMD until Jan 2011 or can you take two years of QCD in 2011? Thanks

-Lewis



Submitted by Alan Spross on Wed, 2011-01-12 20:42

You can make two years of QCDs in 2011 up to 100k each, but the one for 2010 must be completed by the end of January.

If the taxpayer took his RMD earlier in 2010, the 2010 QCD will still be a tax free donation to charity and will avoid the need to itemize it, however the 2010 RMD cannot be considered part of the QCD since the RMD was already taken and cannot be rolled back.

The 2011 QCD however can be made prior to any other distribution in 2011 that would be considered the 2011 RMD. Therefore the 2011 QCD will have the added benefit of covering the 2011 RMD and the RMD will therefore not be taxable since none of the QCD is taxable.



Submitted by Arthur Dicker on Thu, 2011-01-13 16:29

I don’t see how the IRS announcement can possibly be correct.
An RMD is just a required annual withdrawal amount, and not any specific distribution.
The 1099-R does not report any specific distribution as the RMD.
So why is the withdrawal taken in December 2010 irrevocably identified as the RMD which cannot be rolled back into an IRA?
Then you could make the January 2011 QCD the RMD for 2010.
I don’t get it.



Submitted by Al Fry on Thu, 2011-01-13 16:34

I cannot cite the authority (Alan can), however any money out from an IRA is always first allocated to the RMD. So if that was the only W/D in 2010, it would be the RMD.



Submitted by Al Fry on Thu, 2011-01-13 16:36

I attended an update on the Tax Act yesterday with a prominent CPA and Attorney, and they concurred with my previous comment.



Submitted by Jose Morales on Thu, 2011-01-13 16:45

Page 33 of Publication 590 states “Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment.” You do not get to pick which distribution during the year counts towards your RMD, it is the first amount withdrawn from your IRA.



Submitted by Alan Spross on Thu, 2011-01-13 18:14

Here is the IRS Reg on this. 1-408-4, Q&A 4:

>>>>>>>>>>>>>>>>>>>>
Q–4. What portion of a distribution from an IRA is not eligible for rollover because the amount is a required minimum distribution?

A–4. The portion of a distribution that is a required minimum distribution from an IRA and thus not eligible for rollover is determined in the same manner as provided in A–7 of §1.402(c)–2 for distributions from qualified plans. For example, if a minimum distribution is required under section 401(a)(9) for a calendar year, an amount distributed during a calendar year from an IRA is treated as a required minimum distribution under section 401(a)(9) to the extent that the total required minimum distribution for the year under section 401(a)(9) for that IRA has not been satisfied. This requirement may be satisfied by a distribution from the IRA or, as permitted under A–9 of this section, from another IRA.

>>>>>>>>>>>>>>>>>>>



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