(772) 925-2833
arama@insurewitharama.com

Tax Withholding from a Qualified Charitable Distribution (QCD) and from a Roth Conversion: Today’s Slott Report Mailbag

Apr 2, 2026

 

By Ian Berger, JD
IRA Analyst

Question:

I had my IRA custodian send my required minimum distribution (RMD) from my IRA to our church, but had 20% federal taxes withheld. Subsequently, I received two Form 1099-Rs from the custodian. One showed the withheld amount as a taxable amount and had a “7” code. The second showed the balance and had a “7Y” code. Then, when doing my taxes, the tax software also says that the amount withheld is taxable. Is there any way to correct this? Please help.

Bernie

Answer:

Hi Bernie,

You did a qualified charitable distribution (QCD), which is a direct transfer from a tax-free IRA to a charity. (A QCD can be used to offset an RMD for a year if the QCD is done first during the year.) Since QCDs are tax-free, you should not have had taxes withheld. Since the taxes withheld went to the IRS and not to your church, that amount was not a QCD and is therefore taxable to you. That explains why the custodian reported the withheld amount as taxable on the first Form 1099-R. The custodian properly used Code “7Y” for the balance on the second Form 1099-R, since the balance was a tax-free QCD. The mistake of withholding on the QCD cannot be corrected, but you can take a credit for the withholding on your tax return.

Question:

If you’re under age 59½, do a Roth conversion, and withhold from the conversion, are you subject to a 10% early distribution penalty?

Best,

Nick

Answer:

Hi Nick,

Normally, you are not subject to the 10% penalty if you do a conversion before age 59½. However, you will have to pay the penalty on any taxes withheld. That’s because the withheld amounts are not being converted and are considered a standard withdrawal that is being sent to the IRS. This is why we advise paying the taxes on a Roth IRA conversion with other, nonqualified assets – like money from your checking account.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/tax-withholding-from-a-qualified-charitable-distribution-qcd-and-from-a-roth-conversion-todays-slott-report-mailbag/

Note that the example above uses jQuery to trigger the function call, but you could trigger the function call using any method you wish.fbq('track', 'Lead'); - To track the lead event on the page. Like Thank you page after submitting the lead. If you have the Thank you page after submitting the lead then you can paste this code on the page and it'll track it as a successful lead. If instead you wanted to track a standard purchase event when the visitor clicks a purchase button, you could tie the fbq('track') function call to the lead button on your page, like this: