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Sunday October 1, 2023

Case of the Week

Gifts from IRAs, Part 5

Case:

Quentin Charles Douglas 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 to 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 an IRA. As he approached retirement, Quentin continued to contribute to his retirement savings 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. Now in his early 70s, Quentin realizes that he will soon be taking required minimum distributions (RMD) from his IRA. Given his lifetime savings, investment income and social security distributions, Quentin would like to use his IRA to leave a long-lasting legacy.

Each year, Quentin's favorite charity conducts a musical concert with a famous guest conductor. Donors who give $5,000 or more receive two VIP tickets to the concert worth an approximate value of $450.

Question:

Quentin wondered whether he could use part of an IRA qualified charitable distribution (QCD) to make his $5,000 gift and receive the two VIP tickets. He asked his trusted advisor if an IRA charitable rollover can be used to receive tickets to charity events.

Solution:

His advisor explained that IRA charitable rollover distributions will not qualify if there is a "quid pro quo." A quid pro quo benefit does not include intangible religious benefits or naming privileges but does include tangible benefits such as preferred seating or event admittance. Under Sec. 408(d)(8)(C), a distribution will only be considered a qualified charitable distribution if the entire distribution would otherwise be allowable under Sec. 170. If Quentin uses his IRA QCD to make a gift and receives two VIP tickets, the entire distribution from his IRA will be disqualified as an IRA charitable rollover gift. After this correspondence with his advisor, Quentin decides to use cash to purchase the tickets to the concert. Quentin makes a separate $5,000 IRA charitable rollover gift because he understands the benefits of using his IRA QCD to further his favorite charity's mission.

Published May 12, 2023
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