“SECURE Act 2.0” Offers New Opportunity for Charitable Gift Planning

As part of the Consolidated Appropriations Act for 2023, Congress and the President passed into law new provisions commonly referred to as “SECURE Act 2.0” (“the Act”) which, among other things, provides a new opportunity for charitable gift planning. As of 2023, the Act now allows donors who are at least 70-1/2 years old to make an IRA Qualified Charitable Distribution (QCD) in exchange for a charitable gift annuity (CGA) or a charitable remainder trust (CRT).

This is a limited exception to the general rule prohibiting anything of value (or “quid pro quo”) in exchange for an intended QCD. (Here is more information about the basics of QCDs).

Here are some key points about the IRA QCD life-income gift option:

• A donor may elect to establish a CGA (or CRT) with a QCD in only one tax year. For example, if the donor uses a QCD to fund a CGA in 2024, the donor may not do it again in 2025 or later.
• The maximum total amount of QCD that can be used to fund a CGA or CGAs in that single year is $50,000 (indexed for inflation). This counts toward the $100,000 annual limit (now also indexed for inflation under SECURE Act 2.0) for all QCDs. A donor may use QCDs to fund multiple CGAs with one or more charitable organizations in one year as long as the total does not exceed $50,000.
• The annuity (or unitrust) payment must be a minimum of 5% of the QCD amount. This is consistent with the minimum payout requirement for CRTs generally but also means that only donors of certain ages will qualify under the ACGA recommended rates effective January 1, 2023. If the annuitants are too young, the CGA will not qualify for funding with a QCD under this special provision. CGA software or ACGA rate tables can be used to determine whether an individual or couple will qualify.
• Unlike a standard gift annuity, annuity payments may not be deferred and must begin no later than one year after the date of the gift.
• Annuity payments for life income gifts funded with QCDs are all ordinary income (no partial tax-free return-of principal portion of the payment, as with a typical CGA).
• Like other QCDs, the donor does not receive a charitable income tax deduction (but also does not include the QCD in gross income in the year of the gift—note that the donor will include any annuity payments received as income).
• Like other QCDs, it appears the QCD in exchange for a CGA may count toward the donors annual required minimum distribution (RMD).
• In the rare case where a donor may decide to fund a CRT with a QCD, no later contributions may be made to the CRT beyond the initial funding with the QCD.
• For a married couple, each spouse may contribute up to $50,000 of QCD for a life-income gift.

Note: Because of the dollar limitation and typical costs to establish and administer a CRT, use of a QCD to fund a CRT generally is not viable as a practical matter. The law change might be an appealing option, though, for some donors wishing to establish a CGA.

In addition to the option of an IRA QCD for a life-income gift, two other provisions of interest include (1) an inflation adjustment for the $100,000 general QCD limit and the $50,000 limit for life-income gifts in exchange for a QCD described above, starting in 2024, and (2) an increase to the age for beginning RMDs. For individuals turning 72 in 2023 or later, the age for RMDs is 73 (increased from 72), and the beginning age will increase to 75 for individuals turning 74 in 2033 or later. It is important to know and remember that the minimum age for an IRA QCD has not changed, and remains 70-1/2.

The dollar restriction, no charitable deduction, all ordinary income, and the fact that the QCD life-income option can only be used in a single year for each donor make this law change of limited benefit to donors and charities. In many cases, it will be better for a donor interested in a CGA to fund it with other assets, such as cash or appreciated stock.

The QCD for a CGA option will be attractive to some donors, however, such as donors who do not have other assets to give. More importantly, these new provisions are a good reason and opportunity to start conversations with your donors. Plan to share some of this information with your station’s supporters this year.