By Jeffrey Levine and Sarah Brenner
Follow Us on Twitter: @theslottreport
This week's Slott Report Mailbag examines how to take advantage of net unrealized appreciation (NUA) - one of the BIGGEST breaks in the tax code - along with answers to two questions on qualified charitable distributions (QCDs). As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.
I am 61 years old and have been retired for many years from a company with private stock in an ESOP plan. I want to take the stock “in kind” and hang onto it. Can I take and hold the certificates myself (and qualify for net unrealized appreciation) or do I need to open the brokerage account to receive them to qualify for NUA treatment? Thanks for your help.
Assuming you qualify for the NUA treatment and follow all of the pertinent rules, you just need to make sure that the shares of company stock are distributed from the plan in-kind and that they are not rolled over to another retirement account. If the plan will issue you stock certificates, you can “hang on to” them for as long as you want. But you can also hang on to those shares for as long as you want if they’re transferred to a brokerage account. There’s no requirement that you liquidate them within a certain time frame.
My understanding is that a person who is old enough to have required minimum distributions (RMDs) from her IRA must first take the annual required distribution before she can convert part of the residual IRA to a Roth IRA. What if the RMD is given to charity in early 2016 using the new procedure and there is no actual distribution to the owner? Can part of the residual IRA be converted to a Roth in those circumstances? Logically, the answer should be yes, but I am worried the language allowing the Roth conversion was written before the law changed allowing charitable contributions. Can you help?
Good question. It’s fair to question logic wherever the tax code is concerned, but in this case, the law actually works the way you’d think it should. The RMD-to-charity rule you’re referencing – known as a qualified charitable distribution (QCD) – counts towards satisfying your RMD requirement, and as long as that requirement is met, you can convert any portion of your remaining balance to a Roth IRA.
Can a taxpayer make multiple QCDs during a year that adds up to the $100,000 limit, like, for example, four distributions at $25,000 apiece to four different charities?
Or is the taxpayer limited to one QCD per year, so that if s/he wants the full benefit, s/he needs to give the $100,000 to one lucky recipient?
If a taxpayer is eligible to make a QCD, they may make a single QCD for up to $100,000 or many separate QCDs, as long as the total does not exceed the $100,000 annual limit.