Inherited IRAs and QCDs: Today's Slott Report Mailbag
By Ian Berger, JD
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I inherited an IRA from my sister two years ago. She was collecting RMDs at 78.
My question involves collecting my sister’s RMD. Does the 10-year withdrawal go into effect now or do I use the table under my age, which is 73?
Since your sister died before 2020, the rules in effect before the SECURE Act apply to you. That means you should have begun receiving an annual RMD by December 31 of the year following her death. The 10-year payout rule does not affect you. Annual RMDs are based on your life expectancy under the Single life Expectancy Table. For the first RMD, you use a factor of 15.5 – the life expectancy for a 72-year old. For subsequent years, you subtract one from the previous year’s factor. RMDs were not required for 2020. If you missed an RMD, you should file Form 5329 with the IRS.
I purchased an IRA fixed indexed annuity through a well-respected insurance salesperson. I called the annuity company inquiring about the income rider affecting QCDs (qualified charitable distributions) once it is engaged. In the past I have taken my QCDs early in the year and the balance of my RMD (required minimum distribution) in November.
The annuity representative, not the producer, told me I could take the RMD, donate the money as an QCD then claim as a QCD on my taxes. He mentioned IRS Form 1099, which I am aware states the total distribution. This isn't the way it has been handled in the past. I told him I did not understand that and thought it was an Ed Slott question. I thought it was supposed to go directly from the IRA to the receiving charity.
Please clarify. If I were audited, what would happen?
Because of the CARES Act, RMDs are not required for 2020. But if you receive an RMD and do so before taking a QCD, the RMD will be taxable to you -- unless you roll it back to the IRA within 60 days. (You have longer to roll it back if you have been affected by COVID-19.) So, if you don’t want the RMD this year and have the option not to take it, you should let the annuity company know. Even if you don’t receive an RMD in 2020, you can still do a QCD.
You are correct that a QCD must go directly from an IRA to the charity. You could receive an RMD and donate it to charity, but that won’t be a QCD. Unless you itemize deductions on your tax return (most people don’t), you usually won’t get any tax benefit from the contribution. There is a special rule in 2020 that might allow you a deduction even if you don’t itemize. That may be what the annuity company was referring to.
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