Ensuring Lorain County’s Future is Secure (2.0)
Here we are at the start of another new year, wondering what will be ahead for us in 2023. As we make our resolutions or other plans, we may also be reflective on what did or did not work last year. While many of us look at this new year as an opportunity for new, positive outcomes in our lives, it is natural to still have some trepidation about the future.
Toward the end of last year, the Secure Act 2.0 was included in the Consolidated Appropriations Act of 2023. It includes many changes that are intended to enhance and facilitate retirement benefits. While this legislation aims to help enhance retirement security, there were also some modifications that impacted charitable giving. For a number of years, those with an IRA who are age 70½ or older were permitted to make distributions from their IRA directly to charity and avoid recognition of income. This IRA charitable rollover or qualified charitable distribution (QCD) provision has not changed even though the Required Minimum Distribution (RMD) age has increased to 73. What is new is that the act expands the QCD by allowing a one-time transfer of up to $50,000 to a charitable remainder annuity trust, a charitable remainder unitrust or an immediate charitable gift annuity. Also, new in Secure 2.0 is the charitable rollover / QCD annual limit of $100,000 and the $50,000 one-time transfer option will be indexed for inflation starting in 2024.
So, what are a charitable remainder annuity trust (CRAT), a charitable remainder unitrust (CRUT) or a charitable annuity (CGA)? While there are subtle differences between the three, the main benefit is that the donor can make a charitable contribution from their IRA and then receive at least 5% income from that gift for their life or the life of their spouse. It is thought that this new one-time QCD option will be used primarily for IRA-to-CGA rollovers. This is because most trustees who would handle the administration of a CRAT or CRUT typically prefer a higher dollar amount than what is currently allowed.
Why would a CGA be the best choice? In times of market volatility, these options can be a great tool for individuals and couples who want to support the causes they care about while enjoying the security of a fixed income for life. Because the income terms are established when the gift is made, it is less impacted by market performance. After the lifetime payments are received, there will be a future gift to support Community Foundation or another cause of your choice. Gifts to Community Foundation can be used to support a specific purpose or create a new fund. Even though you are receiving income, you can still reduce your taxes.
For example, if my husband and I were older, we could do a $10,000 QCD to a CGA regardless the size of our RMD, we would receive an annuity payment of about $560 each year for the rest of our lives. Based upon the life expectancy used in the calculation, we would have received more income than donated at the time of our passing and Community Foundation would still receive $10,000 to fund a new endowment to benefit the causes we care about.
Leveraging IRA assets and charitable gift annuities can create a win-win for both the people who care and the causes that matter to them. If you would like to learn more about the IRA to Gift Annuity Rollover and other giving opportunities by contacting Laura Malone, Development Officer, or visiting on our Donor Learning Portal.