Charitable IRA Rollovers for 2014? Planning with a Provision That Doesn’t Exist

The provision for qualified charitable distributions (QCDs), which allows IRA and inherited IRA owners 70 1/2 or older to transfer portions of their accounts to qualifying charities tax-free. while satisfying all or a portion of their RMDs (required minimum distributions), expired at the end of 2013. Although widely expected to be reinstated by Congress at some point there is no guarantee that will actually happen. That’s especially true since this is an election year.

Suppose, though, that you want to make a QCD now, while the provision doesn’t currently exist. What should you do? Well, when it comes down to it, there are really only two options, or strategies, if you will, to choose from.

Wait-and-See Strategy

Although you might want to hold off taking your RMD until later this year so you can take advantage of a potential change in the law restoring QCDs, it’s risky to wait until the very last minute … if it gets to that point.

A failure to timely take your RMD could subject you to a 50% penalty on the shortfall. Although the IRS has been somewhat flexible in waiving this penalty when there is a legitimate reason, “waiting on Congress” to take an action that may never come to pass hardly seems like a reason worthy of a waiver.

You must carefully weigh the risks vs. the rewards of a wait-and-see-what-Congress-does strategy.

Act-Like-it’s-Already-There Strategy

Each time Congress has brought back the QCD provision in the past, they have made it retroactive to the date it previously expired. As a result, assuming you had followed the rules for QCDs during the periods of time the provision was expired, your distributions eventually were treated as valid QCDs. While there is absolutely no guarantee that if Congress brings back the QCD provision again, it will once again do so retroactively, there’s more than a reasonable chance they’ll do so.

As such, in this fake-it-‘til-you-make-it approach, if you would like to make a QCD for 2014, you might benefit from acting as if the QCD provision is already in place and still have your IRA distribution go directly to the qualifying charity of your choice. If you do, there’s a good chance it will ultimately be able to be treated as QCD. At worst, you’ll have to claim the distribution as income on your return and claim the contribution to charity as an itemized deduction.

– By Jeff Levine and Jared Trexler