Another example is that an IRA owner must be past their 70½ birthdate to make a qualified charitable distribution (QCD). Since it is permissible to count QCDs toward the required minimum distribution (RMD) and the RMD can be taken during the year the owner turns 70½ even if before their 70½ birthdate, shouldn’t a QCD taken before the 70½ birthdate be allowed too?
Update QCD Rules
Speaking of QCDs, I’d love to see a QCD code on 1099-R. The custodians already make the check payable to the organization and not the IRA owner. If they could code it QCD, fewer taxpayers would forget to reduce the taxable amount reported on 1009-R, the IRS wouldn’t have to wonder why the taxable amount is less than the gross distribution when filers fail to indicate it’s a QCD on the return, and institutions, including my firm, would field less calls from clients who think the 1099-R is incorrect.
I realize custodians don’t track non-deductible contributions or make pro-rata rule calculations and I can see why. Tracking that with all the rollovers and account transfers that can occur in a taxpayer’s lifetime would require a lot of inter-institution communication that does not exist today. Maybe that will change. Brokerages must forward basis information for covered securities and insurance companies do similar with 1035 exchanges. Regardless, QCDs are different. They don’t really affect the basis tracking because QCDs are deemed to be purely pre-tax.
As it stands, through the QCD, the code provides those IRA owners over 70½ with a nice incentive to give to charity. That’s great but younger tax payers should be incented to give too. I’d love to see either a modest above the line charitable deduction for all or an expansion of the availability of QCDs to all IRA owners.
Another curious quirk of QCDs comes with inherited IRAs. Currently, if dad is over 70½, his IRA is an acceptable pool of money from which to make a QCD. When dad dies, however, that pool is no longer deemed acceptable if the beneficiary who takes the assets as an inherited IRA is under 70½.
That makes no sense. I think it would be reasonable to allow beneficiaries of inherited IRAs to do QCDs if the original owner was eligible to make those distributions.
IRA Inconsistencies
Like many readers, I was dismayed that the ability to recharacterize a Roth conversion was eliminated in the last tax act. Before 2018, you could wait until as late as Oct 15th of the year following the year of the conversion, even if you had already filed a return. That meant you could convert on January 2nd and change your mind 21½ months later.
I always thought this particular recharacterization rule was generous, so I wasn’t shocked that lawmakers wanted to tighten that up, but the complete elimination of recharacterizing conversions is overkill to me. It feels like the government is trying to trick people into paying taxes by making them guess what their income and deductions will be.