Case:

Quentin was the firstborn child in a large family. Throughout his childhood, Quentin’s parents worked hard to put food on the table for their children. They also instilled in Quentin the value of hard work and saving money. Quentin took those lessons to heart, putting forth his best effort in school, finding a rewarding job and saving as much as possible. For many years, Quentin worked for a company that offered a 401(k) plan. During those years, he put as much into his 401(k) as he could afford so that he could maximize the benefit of his employer’s matching contributions. Eventually, Quentin moved on to other employment and made a tax-free rollover of his 401(k) into a traditional IRA. As he approached retirement, Quentin continued to contribute to his retirement by maxing out his IRA contributions each year. 

With his lifelong penchant for saving money and some savvy investing, Quentin was able to retire comfortably at age 65. Given his lifetime savings, investment income and social security distributions, Quentin does not feel he needs the additional income that his IRA distributions will provide – especially with the increased taxes tied to that income.

Question:

Having spoken with his advisor about making an IRA charitable rollover gift to charity, Quentin is excited to move forward. Quentin is preparing to call his IRA custodian to request a distribution in his name. He will then cash the check and send the proceeds to charity. Before he does so, however, he gives his advisor a call to make sure he is following the proper steps.

Solution:

Quentin’s advisor warns him not to request a check made out in his name. The IRA distribution must be a direct distribution from the IRA custodian to charity. If Quentin receives the check, cashes it and then sends the distributed amount to a qualified charity, his contribution will not qualify as an IRA charitable rollover.

The advisor explains that Quentin should use the custodian’s qualified charitable distribution (QCD) form to direct the gift to charity. If he is unable to find the form, he may send a letter to the IRA custodian explaining that he wishes to make a QCD from his IRA to a public charity. The IRA custodian will often respond to a letter by mailing the required form to the IRA owner to request the QCD. Quentin will need to direct the custodian to issue a check in the name of the charity and send the check directly to the charity.

Quentin follows his advisor’s instructions and directs the custodian to make a distribution to his favorite charity. He is glad that he reached out to his advisor for help, knowing that he has narrowly avoided taking additional income for the year.