If a taxpayer takes 2 RMDs (separate IRA accounts), does QCD from one, but in excess of that RMD, can the excess offset part of the RMD from 2nd IRA?

[janice-mcclellan]

The IRA accounts are from different brokerage firms.  Taxpayer intended for the 1st RMD to totally go to charity.  But, made an error and sent $10k more than the RMD.  Still has a taxable RMD from 2nd brokerage.  Any chance that excess QCD taken from the first IRA can offset some of the taxable RMD?

[TaxMonkey · Accepted solution]

That doesn't make any sense.  The amount of the RMD is irrelevant, there were distributions from the IRA.  The distributions that went to charity are not taxable, the distributions that didn't go to charity are.  The fact that the distributions are larger than the required minimum distribution is irrelevant.

[janice-mcclellan]

Example will make it more clear.  RMD 1st IRA is $40k and has $50k QCD.  1099R only reported $40k as distributed.  2nd IRA has RMD of $30k no QCD.  Can the excess $10k QCD sent from first IRA offset $10k of taxable RMD from the 2nd IRA?

[Just-Lisa-Now-]

How did they send 50k to the charity, if only 40K was distributed?

[TaxMonkey]

Yes that is just an error on 1099-R based on your facts. Regardless taxes are not based on RMD - they are based on distributions.

[janice-mcclellan]

Their financial advisor told them they had $10k remaining of their RMD which could be sent to charity.  Turns they had already directed the entire RMD to charity, then directed $10k more based upon what their advisor had told them.  I agree with TaxMonkey, that the 1099R should have reported the additional $10k as a distribution, but it doesn't.  

[rbynaker]

When the broker's reporting and the client's recollection don't agree, that's usually time for a 3-way call! 🙂  I typically trust the broker reporting more than the client's memory, but this wouldn't be the first incorrect 1099 I've seen in my career...

You can rely on what the client tells you unless you have reason to believe otherwise.  I think you have reason to believe otherwise, so you should get everyone on the same page.  Maybe the $10K wasn't processed until 2019?  Maybe the paperwork was lost in the mail?  Who knows, but in order to prepare an accurate tax return you need to find out.

I really wish the IRS would come up with a reporting mechanism for this stuff.  These QCDs are great but not if your clients don't remember that they did them!

I've been recommending that the client have the broker make the check out to the charity but mail it to the taxpayer.  Then the taxpayer can make a copy of the check (take a pic with their phone, whatever) and forward the check on to the charity.  Then we have at least some sort of a paper trail if/when the IRS comes knocking.

Rick

[janice-mcclellan]

The 1099R is definitely incorrect.  I have the monthly statements that show $10k more in withdrawals than the 1099R reports as distributions.  I also have all of the confirmations from the brokerage and the charities.  They were all done in September, so no end of the year problems.  

[rbynaker]

Great, you've done your due diligence.  Sounds like you have $50K distribution from one account, a $30K distribution from another and $50K of QCD.  So $30K of retirement income on the 1040.  I would report the correct amount, even though it doesn't agree with the 1099R.  You could try to get a corrected 1099R but I wouldn't hold my breath.

[Just-Lisa-Now-]

agreed