QCD Rollover?

bilvihur

I normally take my RMD in the form of QCD's. A month ago, before the CARES Act suspended RMD's for 2020, I sent a QCD to a charity that was in desperate need. The funds came out of a traditional IRA, which of course was greatly devalued since last year. If I'm reading the IRS rules correctly, I have 60 days to rollover an RMD back into the IRA, but it doesn't mention how it treats a QCD. I'd like to replenish the IRA from cash if possible. Any advice?

msf

It's an interesting idea, but I have my doubts about whether it would work. In order to make a QCD, the money goes directly from the IRA to the charity. It's something like a direct rollover where the IRA sends you a check, but one made payable to the new IRA.

Since you never have possession of the money (either with a QCD or a direct rollover), ISTM there's nothing for you to put back into an IRA. I've not researched this, so this is purely speculation. If you find out anything more encouraging, please let us know.

FWIW, the CARES act allows one to take up to three years to do a "60 day rollover", if the cash was withdrawn because of a COVID-19-created need. This is "limited" to $100K.

bilvihur

My thought was that a QCD is an RMD distribution without tax consequences. Since CARES made RMD's unnecessary in 2020 (after the fact), those who took an early distribution should be able to put it back. We'll see...

Derf

YOU have 60 days to return it from date of distribution, I believe I read. Although that may be from CARES implementation.
(Already taken out your 2020 RMD but wish you hadn’t? You might be able to roll over distributions you’ve already taken for 2020, says Slott. If you've already received a distribution from your own IRA or one inherited from a spouse for 2020, you can roll it back into your IRA within 60 days of receipt. ]
Derf

msf

The suggestion that "those who took an early distribution should be able to put it back" is not always true. If someone were to take an early RMD distribution from an inherited IRA, that person would not be able to put it back. That's because, as Kitces writes, "A beneficiary is not eligible to make a rollover. Period."

Similarly, for one to be able to put back a QCD, there would have to be an existing 60 day rollover rule for QCDs. There isn't.

The 60 day rule according to the IRS, is: "If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days ... from the date you receive an IRA or retirement plan distribution."

The money wasn't paid directly to you. There's no date you received the distribution, so no 60 day clock is running.

Think about the complexity of such a rule if it existed. Aside from redefining the 60 day clock, it would need special provisions to allow you to take an itemized deduction for the charitable contribution.

That's because when the smoke cleared, you would have reduced your taxable account by the size of the contribution and left your IRA intact. I'm pretty confident that no such verbiage exists in CARES.

msf

Derf said:

YOU have 60 days to return it from date of distribution, I believe I read. Although that may be from CARES implementation.
(Already taken out your 2020 RMD but wish you hadn’t? You might be able to roll over distributions you’ve already taken for 2020, says Slott. If you've already received a distribution from your own IRA or one inherited from a spouse for 2020, you can roll it back into your IRA within 60 days of receipt. ]

A couple of tweaks.

The "classic" 60 day rule is that the clock starts from the date you receive the distribution, not from the date the distribution is made. It can take a few days to receive the check in the mail.
https://www.irahelp.com/slottreport/6-facts-every-ira-owner-should-know-about-60-day-rollover-rule

CARES extended the time from 60 days to three years, and allowed the money to be deposited back into an IRA in pieces. But these modifications apply only to the first $100K withdrawn, and then only if it was withdrawn because of a COVID-19 created need.

The inherited IRA rule is not that you are rolling it back into the inherited IRA. It must be rolled over into an IRA owned by the beneficiary (spouse). As Kitces writes:

(Nerd Note: The lone exception for beneficiaries would be for a spouse who chose to remain a beneficiary of the deceased spouse’s retirement account. In such an instance, they may be eligible to put the RMD back into their own retirement account, as a spousal rollover, using one of the methods described above.)

bilvihur

Well, I called Vanguard, and they said "Yes", but I have to do it over the phone.They're not set up to do it online. The only wrinkle was, because of their "frequent trade policy", I had to move the money from my Money Market account into ANOTHER traditional IRA account, not the one I took it out of. Better than nothing...

msf

While contributing money to an IRA and making an investment within an IRA are often performed in a single step, they are conceptually two different operations with different sets of restrictions.

Be careful. From what you wrote above, it sounds like Vanguard was talking about an internal (Vanguard) restriction on the second part - buying a particular fund in your IRA - perhaps not about any IRS restrictions on the rollover aspect.

Did they explicitly address your question about rolling over a QCD withdrawal? Or did they just look at the fact that you'd made an IRA withdrawal (which would normally be eligible for a rollover within 60 days)? Did they clearly state that you could do a rollover even though they had sent the cash from your IRA directly to a charity.

As I've posted in another thread, Vanguard first line support staff (at the number they give on their IRA transfer page) doesn't always know what they are talking about. They're also lax in checking all the nitty gritty details about an account

If they didn't transfer your call to their IRA department, you might double check with this department. I hope Vanguard's right and you can do this.

FWIW, I am able to contribute cash into a Vanguard IRA and mark it as a rollover contribution, all online. However, to do this online, that cash must come from an outside bank account, not from a Vanguard taxable MMF.

bilvihur

The answer to all three questions is NO, but I'm willing to take my chances with the IRS.

msf

Hard to find anything on point since, as the quote below suggests, nothing explicit exists. Still, FWIW:

Furthermore, although qualified charitable distributions (QCDs) can be used to satisfy your RMD, I believe that you cannot make a rollover contribution using those funds. To be a qualified charitable distribution, the assets need to be paid directly to the charity. However, in order to begin a rollover contribution, the funds must be paid directly to you so they are under your control. Thus, even though I cannot find an explicit ruling on the matter, I believe any QCD already taken in 2020 will also be final.

https://www.marottaonmoney.com/if-you-act-fast-you-can-undo-your-2020-rmd-thanks-to-the-cares-act/

That's from the COO of a fee-only wealth management firm. Hardly authoritative, though it is coherent. If I found anything to the contrary containing more than a bald assertion, i.e. with some rationale, I would post that as well. This is all I've found to date.

Let us know if your rollover passes muster.

bilvihur

I think the hangup is on the term "rollover". The CARES Act allows a "re-contribution" of funds withdrawn from an IRA before the 2020 RMD requirement was suspended. As I see it, I'm getting a "do over" to bring my IRA balance back to what it was before the withdrawal. I do agree that the source of the "re-contribution" is not the recipient of the QCD. I'll cross my fingers and keep you posted.