Section 208 of the American Taxpayer Relief Act of 2012, (P.L. 112-240) (the Act), enacted Jan. 2, 2013, extended application of Internal Revenue Code section 408(d)(8), reauthorizing qualified charitable distributions (QCDs) made during 2012 and 2013. It’s one thing to recite the special rules meant to deal with the Act’s late enactment (see "A New Twist on an Old Election," ); it’s another to apply them. Here are some QCD examples to help navigate those rules.
Pre-Act QCD Made
An individual retirement account creator made an IRA distribution payable to a charity that would have qualified as a QCD, but for the absence of legislation extending the availability of QCDs after Dec. 31 2011. Pre-Act QCDs made at any time during 2012 now qualify. Some wrote $100,000 in checks from their IRAs directly to qualifying charities during 2012, just in case Congress would retroactively extend QCDs. Because Congress did so, those checks qualify as 2012 QCDs.
Contributions Made After RMD Withdrawal
An IRA creator-taxpayer withdrew $100,000 of 2012’s required minimum distribution in December 2012; he made $100,000 of charitable contributions in December 2012 after the IRA withdrawal. He may designate up to $100,000 of December 2012 QCDs as 2012 QCDs made out of the 2012 RMD. In addition, all of 2013’s $100,000 QCD is available.
Contribution Made After IRA Withdrawal
An IRA creator made $100,000 of 2012 IRA withdrawals during December 2012. He made $100,000 of charitable contributions in January 2013. The January contribution can be treated as a 2012 QCD out of those December 2012 withdrawals. In addition, all of 2013’s $100,000 QCD limit is available.
Automatic Withdrawals Made
An IRA creator and IRA custodian agreed to automatic quarterly withdrawals totaling the 2012 RMD. The last quarterly RMD was made during December 2012. The IRA creator may, by January 31, 2013, make a cash contribution of up to $100,000 out of the December 2012 quarterly distribution. That amount will be treated as a QCD.
Effect of DOMA
Each of two spouses wishes to make a 2013 QCD. Each has a $100,000 limit; the limit applies to individuals and isn’t affected by marriage. This means the federal Defense of Marriage Act doesn’t affect their QCDs. .
RMD Not Taken in 2012
A taxpayer didn’t take $100,000 of 2012’s RMD before Dec. 31, 2012. During January 2013, he can designate up to $100,000 in charitable contributions as 2012 QCDs. In addition, all of 2013’s $100,000 QCD limit is available.
2013 Withdrawal Made in January
A taxpayer withdrew $100,000 of 2013’s RMD in January 2013. Charitable contributions made before the withdrawal occurred may not be designated as QCDs. Nor may January 2013 contributions made after the withdrawal occurred. But all of 2013’s $100,000 QCD limit is still available for future use any time during 2013.
IRA Creator Reached Age 70½ After RMD Made
An IRA creator withdrew 2012’s RMD in December. But, although he attained age 70½ during December, he attained that age 70½ after the date he withdrew the RMD. It seems doubtful Congress meant to expand QCDs to those who hadn’t yet attained age 70½ at the time of the IRA withdrawal, but rather only to compensate taxpayers for its late passage of legislation allowing QCDs for 2012. Thus, because the IRA distribution occurred before the taxpayer reached age 70½ and because the charitable contribution of the proceeds of that IRA distribution, if allowed to qualify as a QCD, relates back to that 2012 distribution, I believe that no cash contribution of the amount withdrawn can be designated as a QCD.
IRA Creator Turns 70½ Before Dec. 31, 2012
An IRA creator turned age 70½ by Dec. 31, 2012. A 2012 RMD could be delayed to 2013 because the required beginning date is April 1, 2013. I believe that up to $100,000 of QCD may be designated as a 2012 QCD in satisfaction of the 2012 RMD that wasn’t due until April 1, 2013, because the RMD could have been satisfied in December 2012. In addition, all of 2013’s $100,000 QCD is available.
IRA Creator Died in 2012; Sole Beneficiary Turned 70½ Before 2013
An IRA creator died in 2012. The IRA’s sole beneficiary attained 70½ in 2012 or earlier, but the beneficiary’s first RMD is due in 2013. No distribution to the beneficiary in 2012 can satisfy the 2013 RMD. During 2012, and after the beneficiary attains age 70½, the beneficiary makes a QCD. The QCD qualifies as such, but doesn’t satisfy an RMD of the beneficiary because none was required with respect to 2012. In addition, all of 2013’s $100,000 QCD is available and may be used to satisfy up to $100,000 of 2013’s RMD.
IRA Creator Died in 2012 But Didn’t Take RMD; Sole Beneficiary Turned 70½ Before 2013
An IRA creator died in 2012 without taking her 2012 RMD. The IRA’s sole beneficiary attained 70½ in 2012 or earlier. A distribution to the beneficiary in 2012 can satisfy the decedent’s 2012 RMD. During 2012, and after the beneficiary attains age 70½, the beneficiary makes a QCD. I believe the QCD qualifies as such, and should satisfy the decedent’s final RMD to the extent of $100,000. In addition, I believe the beneficiary could make a QCD during January 2013 and elect to treat it as the decedent’s final 2012 RMD. This example also raises the question: whose RMD comes out of the decedent’s IRA first? I suspect the answer is: the decedent’s, but the IRS hasn’t said so. The basis for my answer is that the IRS considers the first dollars out of an IRA to satisfy the RMD.1
IRA Creator Dies, Names Two Children as Beneficiaries
An IRA creator died in 2012 naming his two children as equal beneficiaries. The children, who were both over age 70½ when the IRA creator died, divide the account into separate accounts before Jan. 31, 2013. The Internal Revenue Service hasn’t said so, but it seems each child may make a 2013 QCD from his respective separate account. It seems highly likely that the IRA custodian will issue a Form 1099-R to each of the two beneficiaries for each beneficiary’s respective separate inherited IRA. But may either or both make a 2012 QCD during January 2013? The IRS hasn’t spoken to this question.
IRA Creator Made 2012 QCD Before Death
An IRA creator died on June 24, 2012 and made a $100,000 2012 QCD before death. The IRA’s sole beneficiary turned age 70½ before the IRA creator died. A $100,000 QCD is available to the beneficiary for 2012 out of the beneficiary’s resulting inherited IRA. That’s because the QCD limit applies to each taxpayer, not to the IRA, and because there’s no requirement that a QCD satisfy a RMD. If the beneficiary didn’t make an 2012 QCD, he can still do it by Jan. 31, 2013. In addition, all of 2013’s $100,000 QCD is available.
IRA Creator Died Before 2013; Beneficiary Turn 70½ in January 2013
An IRA creator died before 2013. The IRA’s beneficiary turns age 70½ in January 2013. The beneficiary may make a 2013 QCD after turning age 70½, but may not designate any 2013 as a 2012 QCD, because the beneficiary didn’t attain age 70½ at any time during 2012.
Single $200,000 QCD Made in January 2013
A single $200,000 QCD is made in January 2013. It seems that $100,000 should be available to be designated as a 2012 QCD, but because the IRS hasn’t said this works, the better practice may be to make two separate QCDs, $100,000 for 2012 and another $100,000 for 2013.
How QCDs are Reported
An IRA creator takes 2012 distributions totaling $130,000. Of those distributions, $100,000 were QCDs by direct contribution to qualifying charities. The IRA creator-taxpayer (not the IRA custodian) reports QCDs. The IRA custodian reports the full $130,000 amount of the distribution on Form 1099-R. The taxpayer reports $130,000 on line 15(a) of U.S. income tax Form 1040, but reduces the amount reported as taxable on line 15(b) by the QCD amount. Therefore, only $30,000 is shown on line 15(b). To explain the $100,000 difference between lines 15(a) and 15(b) to the IRS, the letters “QCD” must be written next to that line.2
1. Treasury Regulations section 1.408-8, Question and Answer 4.
2. IR-2013-6, Jan. 16, 2013