RMDs and QCDs: Advice from a Past President Regarding Required Minimum Distributions and Qualified Charitable Distributions

by Norfleet Pruden

Since I turned 70½ on March 1, 2019, I have given a good bit of attention lately to required minimum distributions (RMDs) and the opportunity to make qualified charitable distributions (QCDs). I deferred all charitable contributions that I would normally have made at the end of the previous calendar year until March 2019 – including my gift to the North Carolina Bar Foundation. This is because of the new tax law that eliminates virtually all itemized deductions other than charitable contributions, the first $10,000 in state and local taxes, and mortgage interest.

Since making my charitable gifts as QCDs has the same effect as making deductible charitable contributions (because they are made with pretax dollars), but doesn’t preclude me from taking the standard deduction of $24,000 on my  joint  return, then it in effect gives me an extra deduction of $14,000 (the $24,000 standard deduction minus the allowed deduction for state and local taxes up to $10,000 that l would have taken if I were to itemize). Even if I received no benefit from using QCDs to reduce my RMDs, this is a significant tax benefit.

What are Required Minimum Distributions?*

Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired. (*Source: www.irs.gov)

Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.

When a retirement plan account owner or IRA owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the account or IRA. Generally, the entire amount of the owner’s benefit must be distributed to the beneficiary who is an individual either (1) within 5 years of the owner’s death, or (2) over the life of the beneficiary starting no later than one year following the owner’s death.

What is a Qualified Charitable Distribution? *

Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. (*Source: www.irs.gov)

 

Sample Letter to your Plan Administrator:

Dear Plan Administrator:

Please accept this letter  as  my  instructions  to  direct a charitable distribution from my IRA Account #                     to the North  Carolina  Bar  Foundation,  a 501 (c) (3) charitable organization, as provided by Sec.1201 of the Pension Protection Act of 2006 and  Sec. 409(d)(8) of the Internal Revenue Code of 1986, as amended, and extended under the signed Protecting Americans From Tax Hikes Act of 2015. The Foundation’s tax ID # is 56-0767805 and the payment should be mailed to:

North Carolina Bar Foundation

8000 Weston Parkway

Cary, NC 27513

It is my intent that this distribution qualify for the 2019 tax year. In your transmittal letter to the Foundation, please include my name and address and share a copy with me. I can be reached at (___)       __.

Your Name

 

Sample Letter to inform the N.C. Bar Foundation:

Dear Tom Hull & Louise Harris:

I have requested that a direct charitable distribution from my IRA be made to the North Carolina Bar Foundation, as provided by Sec.1201 of the Pension Protection Act of 2006 and Sec. 409(d)(8) of the Internal Revenue Code of 1986, as amended, and extended under the signed Protecting Americans From  Tax  Hikes  Act of 2015. It is my intent that this distribution qualify for 2019 tax year.

A  check  in  the  amount of $_____ is  being  sent to you from my IRA with (list  plan administrator here).When received, please direct my IRA gift to:                                       (Annual Fund, Justice Fund or greatest need).

Mail to: 8000 Weston Parkway, Cary NC 27513