How To: Charitable Distributions From My IRA

Mojo.Hand

QW2016-H&B, Win10:I have started taking Required Minimum Distributions, from my IRA (mutual funds) this year, and I'm confused, about how to record them. The RMD is taxable Income.

I "sell" shares in the IRA and "buy" shares in my taxable funds account, but the transactions don't show up as taxable income, even though the "Transfers Out", of the IRA is set to "1099-R Total IRA taxable distrib". The transactions are showing up as "_RLzdGain". 

I gave up tax withholding because I couldn't find a way of recording that.

NOW: I want to make a tax exempt charitable contribution, from my IRA. The mutual fund company "sells" some of my shares and writes a check directly to the charity. 

How do I record that as a nontaxable charitable distribution?

Thanks for your help.

Mojo.Hand

I would prefer to have a written procedure to follow.
Can you do that?

J_Mike

For recording your distributions, see this FAQ;
https://getsatisfaction.com/quickencommunity/topics/faq-best-way-to-handle-distributions-from-ira?to...

J_Mike

For the charitable contrition, see this ink for a suggestion;

https://getsatisfaction.com/quickencommunity/topics/donate-from-ira

Note that this post is for QMac but the same principal applies for QWin.

q_lurker

You might also refer to this discussion:
https://getsatisfaction.com/quickencommunity/topics/required-minimum-distribution-from-ira-to-charit... from a more Win-centric viewpoint.

J_Mike

q.lurker said:

You might also refer to this discussion:
https://getsatisfaction.com/quickencommunity/topics/required-minimum-distribution-from-ira-to-charit... from a more Win-centric viewpoint.

@q.lurker - thanks for the link. Was not aware of these details regarding tax handling of charitable contributions.

J_Mike

Have reviewed the discussion referenced in q.lrkers' post and have one variation to suggest;

Create a Category for the charitable contribution; e.g., "IRA Distrib Charity".
Assign tax line item; "1099-R:Total IRA taxable distrib." (same tax line as used for distributions).

Record a split transaction in the receiving account;
First split is the total distribution - including charity contribution - a transfer from the iRA account.
Second split is the charitable contribution - negative value - with the above category.
Total of the split is the net deposit to the receiving account.

If you now examine the Tax Schedule Report - under the 1099-R section.
The gross distribution is reported and also reported is the charitable contribution as a debit reducing the taxable "income".

The value I see in this approach is that the Tax Schedule Report better documents the overall transaction sequence - a gross distribution, less a charitable contribution, leaving the net taxable income.

q_lurker

JM said:

Have reviewed the discussion referenced in q.lrkers' post and have one variation to suggest;

Create a Category for the charitable contribution; e.g., "IRA Distrib Charity".
Assign tax line item; "1099-R:Total IRA taxable distrib." (same tax line as used for distributions).

Record a split transaction in the receiving account;
First split is the total distribution - including charity contribution - a transfer from the iRA account.
Second split is the charitable contribution - negative value - with the above category.
Total of the split is the net deposit to the receiving account.

If you now examine the Tax Schedule Report - under the 1099-R section.
The gross distribution is reported and also reported is the charitable contribution as a debit reducing the taxable "income".

The value I see in this approach is that the Tax Schedule Report better documents the overall transaction sequence - a gross distribution, less a charitable contribution, leaving the net taxable income.

That sounds like a great adaptation.  

So you end up with a two charitable expense categories
1)  The 'normal' one assigned to Schedule A as charitable donations 
2)  A new QCD one assigned back to 1099-R:Total IRA taxable distrib. 

For a pure QCD transfer you would:
1)  Sell the stock/fund in the IRA account
2)  WithdrawX the Cash proceeds to any checking (cash) account with Payee as the Charity
3)  Edit the transaction in the receiving account to be a split transaction with the second line categorized back to the second contributions expense category.  The adjusted amount for the transaction would be $0.  

a) Your IRA account shows the full value 'withdrawal' (useful for RMD checks and thank you's from the receiving agencies as well as performance metric for your account)
b) Your tax schedules show both parts of the 1099-R line item netting $0 of taxable income.
c) While you have made a valid donation, it does not show up among the Schedule A items nor should it.

(QCD = Qualified Charitable Distribution, IRS talk I believe)

J_Mike

JM said:

Have reviewed the discussion referenced in q.lrkers' post and have one variation to suggest;

Create a Category for the charitable contribution; e.g., "IRA Distrib Charity".
Assign tax line item; "1099-R:Total IRA taxable distrib." (same tax line as used for distributions).

Record a split transaction in the receiving account;
First split is the total distribution - including charity contribution - a transfer from the iRA account.
Second split is the charitable contribution - negative value - with the above category.
Total of the split is the net deposit to the receiving account.

If you now examine the Tax Schedule Report - under the 1099-R section.
The gross distribution is reported and also reported is the charitable contribution as a debit reducing the taxable "income".

The value I see in this approach is that the Tax Schedule Report better documents the overall transaction sequence - a gross distribution, less a charitable contribution, leaving the net taxable income.

Good summation - now, what have we overlooked? :<~

Mojo.Hand

JM said:

Have reviewed the discussion referenced in q.lrkers' post and have one variation to suggest;

Create a Category for the charitable contribution; e.g., "IRA Distrib Charity".
Assign tax line item; "1099-R:Total IRA taxable distrib." (same tax line as used for distributions).

Record a split transaction in the receiving account;
First split is the total distribution - including charity contribution - a transfer from the iRA account.
Second split is the charitable contribution - negative value - with the above category.
Total of the split is the net deposit to the receiving account.

If you now examine the Tax Schedule Report - under the 1099-R section.
The gross distribution is reported and also reported is the charitable contribution as a debit reducing the taxable "income".

The value I see in this approach is that the Tax Schedule Report better documents the overall transaction sequence - a gross distribution, less a charitable contribution, leaving the net taxable income.

You guys are GREAT!
I have been struggling with this RMD problem, for six months, and now, with your guidance, I have it solved.I had a tough time figuring out which numbers, in the "splits" should be positive and which negative, but a little trial and error settled that. Thank you, for your rapid, thorough and thoughtful responses, to my questions. I couldn't have done it without you.This will help all the other Baby Boomers reaching this stage of Life.
Thanx again,
Mojo.Hand

Jim_Harman

You may also find the third section of this recent article from Morningstar on the IRS forms and reporting requirements for QCDs helpful
https://www.morningstar.com/articles/867913/3-misleading-irs-forms.html

Burt - Q17 H&B

For those of you who do not have access to the Morningstar site, the section on QCD's says that your 1099-R will report the total distributions (including QCD's).  And, it will be your responsibility to inform your tax preparer about the amount that was QCD's, so that a smaller taxable amount will be reported on line 15b of the 1040.