Recent Legislation Provides a New Opportunity to Support a Qualified Charity
June 30, 2023
As you get older, your alma mater or favorite charity will likely start mentioning making a charitable contribution to a qualified charitable distribution (QCD) from your IRA.
When you reach 73 years old, you must begin taking an annual required minimum distribution (RMD) from your retirement plan or IRA. For some taxpayers, the RMD will push them into a higher tax bracket. However, starting at age 70 ½, you can make a tax-free QCD of up to $100,000 directly to a qualifying charity. (Most public charities would qualify, but the QCD cannot be given to a donor advised fund). The advantage of using a QCD for your charitable giving is the amount distributed will not be taxed or included in your adjusted gross income (AGI).
Recent legislation allows you to make a one-time qualified charitable distribution of up to $50,000 to a split-interest entity to a qualifying charity. A charitable gift annuity (CGA) in which a charity pays you a fixed amount in exchange for the contribution is one example. A charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT) are additional, more complex options.
There are a few items to consider before making a QCD to a split-interest entity. A few requirements under the provision are:
- The annuity must be completely funded by QCDs with fixed payments of 5% or greater.
- Payments must begin within one year of the funding date.
- Only you and your spouse may receive the annuity distributions and the distributions are non-assignable.
It is important to discuss the impact of making a QCD to a split-interest entity with your accountant or financial advisor prior to making a distribution.
Contact us today to learn more about how this could impact you.