September 2018
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Inherited IRAs Pose Many Issues
I read the May 2018 CPA Journal article, “Untangling the Inherited IRA Rules” by Richard L. Russell Jr., Richard L. Russell, and Kristina Kesselring (http://bit.ly/2NeUw1F). One item that was not discussed is an incongruity in the IRS tax rules for inherited IRAs. A non-spouse beneficiary of an inherited IRA for a decedent over age 70½ must take the required minimum distribution (RMD) every year. This then gets reported in taxable income. If the full inherited RMD is solely used to pay charities directly from the IRA, the RMD is then excluded from taxable income; this is called a qualified charitable donation (QCD). If the beneficiary is under age 70½, however, and even if the decedent is over age 70½ and had been taking RMDs, then the QCD is not allowed and the donation is reported as income and itemized on Schedule A. This is particularly troublesome in light of the impact of the new Tax Cuts and Jobs Act, which will lower likelihood of being able to take the itemized deduction.
I do not see the reason for the age limit on the beneficiary, since an RMD is required in this situation. Also of concern is a situation where a non-spouse beneficiary is not able to contribute to his own IRA and therefore unable to offset the inherited RMD. CPAs should write to their senators and congressmen to get the tax law modified for this incongruity.
The Author Responds
I would like to thank Ron Latz for his comment. Latz notes that the article does not discuss an “incongruity” in the IRA rules relative to QCDs and certain taxpayers taking RMDs. Our response is that the manuscript as written was designed to provide notice of an opportunity to CPAs and others interested in expanding their practices. The manuscript was not intended to be comprehensive; instead, it is designed to encourage interested practitioners to review the Internal Revenue Code and Treasury Regulations, along with additional relevant materials, and to take additional CPEs if needed.
In addition, the comment references the age limit on beneficiaries receiving RMDs in the above-cited situation and expresses concern that there are cases where a non-spouse beneficiary may not be able to offset an inherited RMD. Unfortunately, these are policy questions, and due to space considerations and the focus of the article, we were not able to discuss these and numerous other intricacies of the inherited IRA rules. We recognize, however, that these are valid policy points, and welcome the discussion in another forum.
Ronald Latz, CPA. New York, N.Y.
Richard L. Russell, JD, CPA. Denver, Colo.