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  • msf August 2023
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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RMD-QCD-Annuity

yogibearbullyogibearbull
edited August 2023 in Other Investing
A M* poster (LINK) noted this new RMD-QCD-annuity, https://ardweb.uchicago.edu/downloads/QCD_to_Fund_a_CGA_One_Pager_2023.pdf

This is modeled after the charitable remainder trust (CRUT/CRAT) with taxable funds. In these, basically (i) the donor gets immediate partial deduction for the imputed value of the "donation" (accounting for annuity "benefit"), and (ii) the payments to beneficiaries are taxable.

In the new RMD-QCD-annuity setup, only (ii) applies as (i) is not completely applicable. But I am surprised that the full amount is counted. So, if one has $50K in this RMD-QCD-annuity, and $50K in outright QCD, one gets some benefits back from the former. This does seem strange but it is more restrictive than CRUT/CRAT from taxable funds (e.g. beneficiaries can be the donor or spouse only, and other restrictions).

Edit/Add, 8/17/23. QCD can only be from T-IRAs, not from 401k/403b (but those can be rolled over into T-IRAs). Note the RMD age of 72+ and QCD age of 70+.

Comments

  • msf
    edited August 2023
    SECURE Act 2.0 Section 307 (see p 2237(!) here) amends IRC Section 408(d)(8) by adding a new subsection (F).

    This new tax code provides for a QCD to any "split interest entity" (408(d)(8)(F)(ii)) including (I) a CRAT, (II) a CRUT, or (III) a charitable gift annuity. I haven't yet searched for mix-and-match restrictions, i.e. whether one can contribute to more than one gift annuity or, say a CRAT and a gift annuity. Fidelity seems to think that one cannot mix and match, though it is silent on making QCDs to two entities of the same type.
    https://www.fidelitycharitable.org/articles/secure-act-2-0-retirement-provisions.html

    Fidelity's page on charitable gift annuities says that they may have mins as low as $5K but depending on the annuity the min could be much higher. OTOH, it also says that CRTs typically have mins of $250K which would exclude most of them from this new section of the tax code.
    https://www.fidelitycharitable.org/guidance/philanthropy/charitable-gift-annuity.html

    A QCD donation to a split interest entity can only be done in one tax year, similar to the restriction about using an IRA to fund an HSA. You're allowed to make multiple contributions in the same tax year. Keep in mind that if you want the QCD to apply to an RMD, then it must be made before other distributions (standard QCD/RMD rule).

    I can understand the loophole about treating the full amount as a QCD even though one receives a taxable benefit later (what Yogi labeled as (i)). Any other treatment would make this whole thing too complicated - that you would get only a partial QCD exemption from taxes. And that would defeat the objective of using a QCD for RMD purposes.

    QCD decision flowchart (showing where CGA, CRAT, CRUT fit in, and a paragraph on each).
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