By Jeremy Rodriguez, JD
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Hello IRA Expert,
I qualify for QCD (Qualified Charitable Distribution) as I am over 72 years old. I had recently read one of your articles on QCD and the 60-day rollover rule. I have automatic withdrawals of my RMD every quarter. The last automatic withdrawal was on Oct. 15, 2017 when I was overseas. I was overseas from September 22, 2017 to November 2, 2017 for family care-giving assistance for my ailing brother and mother-in-law. I would like to put back my last quarter RMD into the IRA and then do a QCD. However, I am 6 days over the 60-day limit. Is there any IRS waiver that would apply in my situation so I can reverse the RMD money to IRA and do a QCD?
I would greatly appreciate a prompt response. Thank you in advance!
While there are exceptions to the 60-day rollover rule, none of those apply in this circumstance since an RMD cannot be rolled over. Once the RMD is issued, it cannot be undone. While you still have a few days to make the QCD, it will be in addition to the already issued RMD. Going forward, if you want a QCD to cover all, or a part of an RMD, that transaction should be done first and then any remaining funds distributed to satisfy the RMD. At this point, the only option would be to take the RMD, donate an equal amount to a charity, and claim a charitable deduction as an itemized deduction on Schedule A and hope that it mostly offsets the prior taxable distribution. However, please keep in mind that a charitable contribution is deductible in the year that is was made. Accordingly, a 2017 charitable donation must be made by December 31, 2017. If the donation isn’t made until after January 1, 2018, you will need to wait until you file your 2018 taxes to claim the deduction.
I have a client that has $3M in a PSP (profit sharing plan). He is rolling over $1.5M of it to an IRA with me. He plans to take his RMD ($54,744) on that $1.5M after he turns 70.5 on 4/3/2018 and give it directly to charities. He wants to wait until 2019 to take his RMD on the money staying in the PSP (and knows he must take it by 4/1/2019). Is it okay to take the RMD in 2018 for some qualified money and take the RMD on other qualified money in 2019 or is the decision an all-or-nothing one (take full RMD in 2018 or 2019)?
Thank you for shedding light on this for me!
Your strategy will work only if the $1.5 million in plan funds is transferred out of the plan before December 31, 2017. Once you are in 2018, the full 2018 RMD must be paid out of the plan before any plan funds can be transferred to an IRA. Assuming you have timely completed the rollover, then so long as the RMD is satisfied from both accounts by the April 1, 2019 due date, the strategy discussed above is fine. IRAs and employer plans are not aggregated for RMD purposes. Therefore, the client can take the RMD from the IRA right when he turns 70.5 on April 3, 2018. He can then wait until the April 1, 2019 deadline to take his first RMD from the employer sponsored plan. Under this approach, the initial RMD from the IRA would apply to his 2018 tax return. However, he would now have three RMDs on his 2019 tax return; the initial employer plan RMD (issued before April 1, 2019), the 2019 employer plan RMD (due by December 31, 2019), and the 2019 IRA RMD on the earlier amount transferred out of the plan (also due by December 31, 2019).