Secure Act & QCDs
The Secure Act removes the age limits on IRA contributions for individuals with earned income and the date for doing QCDs in unchanged at 70.5 years. Individuals who can and do both will reduce QCDs by the same dollar amount as their tax deferred traditional IRA contributions made in the same year. E.g. $10,000 gross QCDs, $6000 IRA Contributions in 2020 therefore net allowable QCDs is $4000. Annual QCDs can not go below zero dollars. Is this correct?
Permalink Submitted by Alan - IRA critic on Thu, 2020-01-16 20:34
Yes, this anti abuse provision went overboard because most people doing QCDs already have a large pre tax IRA balance and are not recyling deductible contributions made after 70.5. But you are correct in your example that a 10k QCD would have to be reported as a 4k QCD, and the other 6k as a taxable non QCD distribution that most likely will not be itemized because of the higher std deduction. The solution is to avoid making these deductible contributions in most cases. Make a Roth IRA contribution if eligible or if still working make a larger pre tax employer plan contribution to avoid having the QCD benefit impaired and having to keep track of the total amount of these deductible contributions and reductions if you choose not to make the QCDs until later years.