The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with a financial advisor from Virginia is representative of a common inquiry related to qualified charitable distributions. The advisor asked:
“Now that the requirement to start retirement plan distributions has changed to age 72 (from age 70½) generally, is the ability to make qualified charitable distribution (QCD) delayed until age 72 as well?”
Highlights of the Discussion
No, QCDs may still begin at age 70½, despite the delay in starting required minimum distributions (RMDs) until age 72 under the Setting Every Community Up For Retirement Enhancement (SECURE) Act. The SECURE Act did not change the age 70½ start date for QCDs.
A QCD is any otherwise taxable distribution (up to $100,000 per year) that an “eligible IRA owner or beneficiary” directly transfers to a qualifying charitable organization. For QCD purposes, an eligible IRA owner or beneficiary is anyone age 70½ or older who has assets in traditional IRAs, Roth IRAs, or inactive[1] simplified employee pension (SEP) or savings incentive match plans for employees (SIMPLE) IRAs.
Visit our new SECURE Act resource center!
An eligible IRA owner or beneficiary may exclude a QCD from taxable income, plus count it towards the individual’s RMD for the year. As a result of the SECURE Act, a QCD cannot count towards an RMD until age 72.
The SECURE Act included a conforming amendment for QCDs related to the removal of the age restriction on making traditional IRA contributions. As a result, traditional IRA contributions at age 70½ and beyond may affect one’s ability to make a QCD that is fully tax exempt. Effective for QCDs made in a tax year beginning after 2019, the $100,000 QCD limit for that year is reduced (but not below zero) by the aggregate amount of deductions allowed for IRA contributions after age 70 ½. In other words, deductible IRA contributions made for a year after reaching age 70½ and later years reduces an individual’s annual QCD allowance.
Conclusion
Discuss a decision to make a QCD with a tax, legal or financial professions. Generally, QCDs may begin at age 70½ but will not count toward a person’s RMD until age 72, at the earliest, as a result of the SECURE Act. And because traditional IRA contributions may now be made regardless of age, traditional IRA contributions at age 70½ and beyond may affect one’s ability to make a QCD that is fully tax exempt.
Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.
©2020, Retirement Learning Center, LLC. Used with permission.
[1]Not receiving ongoing employer contributions
