Charitable Planning for Retirement

The new Secure Act 2.0 was signed into law in late 2022 and tackles several retirement planning concerns. One notable change is the increase in the age for required minimum distributions (RMDs) to 73 years old for individuals born between 1951 and 1959, and 75 years old for those born in 1960 or later, effective 2023. Additionally, the Act introduces two significant charitable planning options:

1. The ACT provides for an annual increase (indexing for inflation) of the annual limit for qualified charitable distributions (QCDs) starting in 2024. Individuals who are required to take RMDs can use the QCD election to satisfy the RMD requirement while also making charitable donations. This can result in a lower taxable income for the taxpayer, which can reduce their tax liability. The QCD is a powerful tool for charitably inclined taxpayers who are over 70.5 and have traditional IRAs.

• A QCD is a tax-free transfer of funds from an IRA to a qualified charity.
• The QCD is not eligible for an income tax charitable deduction but is exempt from income tax.
• Currently, the annual limit for a QCD to charity (excluding a life income plan) is $100,000.
• The QCD must be directly transferred from the IRA to the charitable plan and cannot be first transferred to the donor’s bank account.
• The transfer can be made via check or wire delivery by the donor’s IRA custodian.
• Funds from another type of qualified retirement plan can be transferred tax-free to an IRA and then to charity or a life income plan.
• The QCD cannot be directed to a donor-advised fund, supporting organization, or private foundation.
• The QCD only applies to traditional IRAs, not Roth IRAs or other retirement accounts.

2. The Act has introduced a new type of QCD that allows taxpayers aged 70.5 years and older to transfer up to $50,000 from their IRA to create life income plans, such as charitable gift annuities (CGAs) and charitable remainder unitrusts or annuity trusts (collectively, CRTs).

• The transfer is a one-time contribution of up to $50,000 and counts toward the overall $100,000 QCD maximum annual limit.
• All payments by the CRT or CGA funded by the QCD must be fully taxable at the recipient’s ordinary income tax rate.
• Only the IRA owner and/or his/her spouse may receive payments from the CRT or CGA funded by the new QCD. No payments are allowed to children or others.
• Spouses can each contribute up to $50,000 from their respective IRAs to a single CRT or for one joint-life CGA.
• Only new CRTs would qualify for this QCD. Existing CRTs cannot receive this new QCD.
• A CRT created with the QCD cannot later receive other gifts from the IRA or other donated assets such as stock or real estate.
• There are also rules regarding minimum payout rates (5%), age restrictions, and eligibility for income tax charitable deductions.