New Laws Can Mean Smart Giving Strategies

In December 2022, the “SECURE 2.0” Act (“Setting Every Community Up for Retirement Enhancement) was signed into law and included changes to the Qualified Charitable Distribution.

What is a Qualified Charitable Distribution?

A Qualified Charitable Distribution (QCD) is a distribution of funds from your IRA directly to a qualified charitable organization, like ACT for Alexandria. Because the gift goes directly to the nonprofit without passing through your hands, the dollar amount of the gift may be excluded from your taxable income up to a maximum of $100,000 annually, with some exceptions. By rolling over your IRA distribution directly to a qualified nonprofit, it qualifies as your Required Minimum Distribution (RMD) and you avoid having to include the distribution as taxable income. We encourage you to consult with a tax advisor for information regarding your specific benefits, including:

• tax benefits without requiring you to itemize your deductions
• the distribution counting towards your required minimum distribution
• the distribution not being included in the income on which your federal income taxes will be based (thus reducing your taxable income)
• the distribution being tax free so you can increase your giving without costing you one additional penny

To learn more about QCDs, please visit IRS.gov.

What are three key provisions affecting philanthropists in the new law?

1. Part of this new legislation is The Legacy IRA Act, which encourages charitable giving by permitting IRA owners age 70½ or older to make a one-time qualified charitable distribution (QCD) to fund a life income gift such as a charitable gift annuity, charitable remainder unitrust, or a charitable remainder annuity trust. These types of life income gifts allow a donor to make a gift to a charitable organization, such as ACT for Alexandria, and receive a lifetime payment, or provide a lifetime payment for a spouse, family member, or other beneficiary. When the income beneficiary dies, the remaining funds are distributed to the charity for the purpose designated by the donor.
2. The “required minimum distribution” is the mandated amount that a taxpayer must withdraw from qualified retirement plans, which include IRAs as well as 401(k)s and other tax-deferred retirement accounts. The required minimum distribution age (previously 72) increased to 73 on January 1, 2023. The age will increase to 75 beginning on January 1, 2033. While this provision is not directly tied to charitable giving, it could impact your overall financial plans and potentially affect the timing and strategy of your philanthropy.
3. The annual per-taxpayer $100,000 QCD cap is now slated to be indexed for inflation, which will allow taxpayers to give even more from their IRAs directly to charity.

Here are three provisions that have not changed:

1. Eligibility for making a QCD still starts at 70 ½. This allows taxpayers who are not yet required to take IRA distributions under the RMD rules to still take advantage of the QCD technique without the income tax hit on the distributed funds while also removing those funds from liability for future estate taxes.
2. Taxpayers required to take RMDs can still count QCDs toward their RMDs, thereby avoiding the usual income tax hit on RMD dollars.
3. Several donors have chosen to use their QCD to support ACT’s operations, specific ACT initiatives like the ACT Housing Fund, Youth Success Fund, or Fund for Racial Equity, or create a designated fund to support nonprofits in the community. You can also support ACT for Alexandria’s designated and field-of-interest funds, but donor-advised funds are not eligible.

To learn more about eligibility, please visit IRS.gov.