IRA Contributions & QCDs: Today's Slott Report Mailbag
By Andy Ives, CFP®, AIF®
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My spouse turned 70 on June 27th, 2018, so in December 2018 she will be 70 ½. She would like to complete a Qualified Charitable Distribution (QCD). Does the QCD need to be dated from December 27 to December 31, 2018 in order to take advantage of the favorable tax treatment for tax year 2018? Or, does she have all of calendar year 2019 to disburse her 2018 (and of course 2019 QCD) to meet the RMD requirements?
Thank you for your advice.
We have a couple of things going on here. First, let’s address your spouse’s RMD. Since she turns 70 ½ in 2018, this year will be her first required minimum distribution. For the initial RMD only, the account owner can either take the RMD in the year they turn 70 ½, or they can delay their first RMD until April 1 of the following year. (2019 for your spouse.) If your spouse elects to delay her first RMD until 2019, she must take two RMDs in 2019 – the delayed RMD from 2018, and the 2019 RMD.
As for the Qualified Charitable Distribution, QCDs can only be completed after a person turns 70 ½ (not just in the year they turn 70 ½). A QCD must be completed in the year the account owner wishes to leverage the tax benefit. This means that if your wife wanted to take her RMD in 2018 and do a QCD for 2018, they would both need to be done in the last few days of this year.
If your wife elects to delay her initial RMD until April 1, 2019, she will lose the ability to offset it with a QCD in 2018. However, she can use a 2019 QCD to offset the delayed 2018 RMD. She can do another QCD later in the year to offset her 2019 RMD. Both QCDs will apply to your 2019 tax return. (Remember, the maximum QCD is currently capped at $100,000 per year.)
My husband is retired but working another job where he earns $25,000 per year. I did some consulting work but only made $5,700 in 2018. Can I contribute $6,500 to an IRA and claim the non-working spouse component, or can I only contribute $5,700?
Since you indicated that your husband was retired, I will assume that you are both over 50. Those over 50 with taxable compensation can contribute $6,500 ($5,500, plus $1,000 catch-up) to an IRA in 2018. Even though you only made $5,700 this year, your combined income with your spouse will permit you both to max out your IRA contributions at $6,500 each.
As for 2019, the IRA contribution limits will go up to $7,000 ($6,000, plus $1,000 catch up). As long as your combined income is $14,000 or more next year, you will again be permitted to maximize your IRA contributions.
Note: Once you reach age 70 ½, you will no longer be able to contribute to a Traditional IRA. However, if you have a modified adjusted gross income below a set limit, you are still allowed to contribute to a Roth IRA.