By Andy Ives, CFP®, AIF®
I appreciate all of the information you pass along, both through PBS and now through the American College. In one of your recent presentations, you discussed QCDs and their often-overlooked value. I recommend QCDs to “eligible” clients. Since the adoption of the new age 72 for RMDs, the question I have is this: As I understand the rules, people who are age 70 1/2 or older can do QCDs up to $100,000 annually. But now RMDs don’t start until age 72. Does this create a “split” definition as to who can use QCDs? That is to say, is there a gray area for those in the “gap” for the beginning age for RMD’s?
You are correct that qualified charitable distributions (QCDs) are only available to those IRA owners who are age 70 ½ and older. You are also correct that RMDs now do not begin until age 72. By raising the RMD age to 72, the SECURE Act essentially created a small window of time where a person could do a QCD and not be subject to RMDs. While QCDs are typically used to offset RMDs, an eligible person could always do a QCD for more than the RMD. The same essentially holds true for those who are between the ages of 70 ½ and 72 – they have no RMD, but can still do a QCD.
My wife and I recently watched your interview on Morningstar and you introduced the “Mega QCD.” Both my wife and I are currently at age 69, so we are not eligible for a QCD this year. However, it seems like we are qualified to make a “Mega QCD” contribution in 2021. We would like to use our IRA money to make charitable contributions of $120,000. We have questions on how to report the “Mega QCD” on our tax form. Hopefully, you can help us to clarify.
The “Mega QCD” is not a true QCD nor is it an actual product. “Mega QCD” is just a catchy name we gave to a charitable contribution tax strategy that is only available for 2021. In the past, taxpayers could only deduct annual cash donations of up to 60% of their adjusted gross income (AGI) for that year. This 60% limit was waived by the CARES Act, thereby allowing up to 100% of cash donations to be deducted. However, the waiver will expire at the end of 2021 when it will go back to the standard 60% limit. The “Mega QCD” strategy is nothing more than a cash distribution from an IRA or company plan of an unlimited amount and a subsequent donation of that unlimited amount to a charity.
The IRA or plan distribution will be reported on your 1099-R and will count towards your AGI on your tax return. However, you would be able to show an itemized deduction of the full amount of the donation on Schedule A. Note that a taxpayer taking the standard deduction cannot itemize a charitable deduction and therefore cannot benefit from the “Mega QCD” strategy.