The SECURE Act was signed into law December 19, 2019, and impacted many aspects of retirement saving. Some of the most significant changes included the age at which required minimum distributions begin and the elimination of the “Stretch IRA” distribution strategies for most non-spouse beneficiaries. On December 29, 2022, the SECURE 2.0 Act was signed into law and updated some of its provisions. One of the more notable updates was changing the RMD age once again. The RMD age is now pushed back to age 73.
These changes are significant since they may impact your estate planning strategies. It may make sense to employ a present gifting strategy instead of leaving IRA assets to a beneficiary given the condensed withdrawal provisions. Also, the 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025 which makes this a good time to revisit your estate plan and perhaps take advantage of the higher exemption amounts in place today.
There are also a few items that are of particular interest to those who are age 70 ½ and would like to take full advantage of the charitable deduction. A Qualified Charitable Distribution (QCD) is a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. You must be at least age 70½ when the distribution was made. The maximum annual exclusion for QCDs is $100,000. For a married couple, if both spouses are age 70½ or over and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year.
Any IRA owner who wishes to make a QCD for 2023 should contact their IRA trustee soon so the trustee will have time to complete the transaction before the end of the year.
The QCD option is available regardless of whether an eligible IRA owner itemizes deductions and transferred amounts are not taxable.
New for this year.
Qualified charitable distribution one-time election. Beginning in 2023, you can elect to make a one-time distribution of up to $50,000 from an individual retirement account to charities through a charitable remainder trust, a charitable remainder unitrust, or a charitable gift annuity funded only by qualified charitable distributions.
Also, for tax years beginning after 2023, this $50,000 one-time election amount and the $100,000 annual IRA charitable distribution limit will be adjusted for inflation.
A Charitable Remainder Trust (CRT) is a tax-exempt trust that is set up for a lifetime, or for a period of years not to exceed 20, before the charity receives the balance of trust assets. In the meantime, you will receive an income stream generated from the trust.
A Charitable Gift Annuity, as with the CRT, allows the donor to not only make a gift but also create a secure source of income. The charitable income tax deduction is based on the present value of the remaining asset balance, net of the annuity payments.
Also, a special needs trust (SNT) or applicable multi-beneficiary trusts (AMBT) holding an inherited IRA or defined contribution plan account can name a charity as the remainder beneficiary without causing issues with the timeframe under which the inherited retirement assets must be paid out. This provides account owners with the ability to provide for the needs of an individual beneficiary while also benefitting a meaningful, eligible charity with the remaining funds from the trust.
Benefits of making charitable gifts:
• The charity receives a gift it can count on to further its cause.
• In most cases, the charity benefits from the full value of the asset transferred.
• You may benefit from the savings associated with a charitable income tax deduction.
• You may be able to avoid a lump-sum capital gains tax on a highly appreciated asset.
• You may achieve gift tax savings and reduce estate taxes.
• You may be able to retain an income from the transferred asset for life or for a period of years.
• You can diversify a concentrated stock position without incurring immediate taxes.
In addition to the various benefits of charitable giving, you may now qualify for an additional gifting solution.
Paul L. Johnson Jr, CFP®
Director of Investments, Peachtree Planning