January 19, 2020

SECURE Act of 2019 and QCDs Part II:
Exploit Unleashed!

If you’re charitable, 72 years old or more, and plan to contribute to your IRA,
you must read this first

  • While this strategy defies conventional wisdom, it will inevitably emerge as the top strategy for transacting IRAs/QCDs simultaneously
  • Beware of the tax trap that IRS has set for the uninformed and ill-advised
  • This strategy also eases the downstream tax burden for Roth conversion and/or estates

NOTE: It is strongly advised that before reading this article you a) familiarize yourself with Qualified Charitable Distributions by visiting qcdnow.com, and b) have read Part I of our take on how the SECURE Act impacts QCDs.

Near the end of my first article on how the SECURE Act was likely to impact QCDs, you may have found yourself nodding your head in agreement as I reached the following conclusions…

“For these taxpayers, having the opportunity to “replenish” one’s RMDs with tax-deductible dollars is quite compelling, even more so if a portion of those RMDs can be excluded from income downstream with a dedicated QCD regimen beginning at age 72.”

and

“Still, the temptation for retirees to reduce their AGI with “instant gratification” IRA deductions that, on average, exceed typical charitable contributions, combined with the QCD reduction rule, will not only likely result in IRAs’ emergence as the preferred tax savings strategy for those eligible, but may also sway these taxpayers to abandon the QCD strategy altogether.”

While I stand by the above conclusions as conventional wisdom on the topic, let me be the first to replace the “conventional” with a strategy that is “quite the contrary” as in “whoda thunk?”

While my first conclusion stated above (re: replenishing one’s RMDs) is correct, this article will illustrate how to attain both the current tax year and downstream benefits instantly, i.e., without having to wait for disallowed QCDs to exceed post 70 1/2 IRA contributions.

And while my second conclusion stated above (re: retirees’ temptation for instant-gratification IRA deductions) rings true, hopefully the strategy outlined in this article will inevitably become the “new conventional wisdom” to be adopted by advisers and taxpayers alike so that all may reap the rewards of the new law (that is, until IRS closes the loophole).

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