Special Update: President Signs New Retirement Plan Legislation into Law

Today we welcome a special guest on the blog: Stelter’s Senior Gift Planning Consultant, Lynn Gaumer, J.D. In her role, Lynn keeps a close watch over tax legislation, research and trends that could affect your planned giving program.  

The president just signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The new law will take effect on Jan. 1, 2020. This legislation marks the most significant changes to retirement security since the Pension Protection Act of 2006.

How the New Law Impacts You

Changed Required Minimum Distributions

The SECURE Act increases the age retirees must begin taking taxable withdrawals from their retirement savings from 70½ to 72. It does not, however, increase the age an IRA owner can take a qualified charitable distribution or QCD. That age remains at 70½ years. I anticipate that this may cause some confusion among your donors.

A Win for the Nonprofit Community

Increased Interest in Testamentary Life Income Gifts

The SECURE Act modifies the stretch IRA provisions.

Under current law:

  • When an IRA owner passes away, the IRA beneficiary can “stretch” distributions over their lifetime. This preserves an account’s tax-deferred status and allows its continued use by future beneficiaries.

For example, an IRA owner can leave their IRA to a 20-year-old grandchild who could stretch their withdrawal for approximately 63 years (according to current IRS life expectancy tables).
Under the new law:

  • Spouses are still allowed to stretch payments over their lifetimes.
  • Non-spousal beneficiaries, on the other hand, have to withdraw any amount left in the IRA within ten years.

Donors may not want their non-spousal beneficiaries to receive their entire IRA proceeds within ten years. A testamentary charitable remainder trust (CRT) or a testamentary charitable gift annuity (CGA) may be a solution. The IRA owner can name a CRT or a CGA as a beneficiary. The IRA proceeds will then be used to fund a testamentary CRT or CGA.

With a CRT, for example, not only is this a great tax strategy, but the non-charitable beneficiaries would receive payments from the CRT over one or more lives or a term of up to 20 years from the trust. At the end of the term, the remainder will go to one or more charitable organizations or to a donor advised fund.

Next Steps

Review your list of donors and identify those who may be interested in stretching their IRA distributions using a testamentary charitable remainder trust or a testamentary charitable gift annuity. Reach out to them and begin the conversation.

4 thoughts on “Special Update: President Signs New Retirement Plan Legislation into Law

  1. Lynn,

    Could you shed some light on the interplay between a donor’s use of a QCD and the fact that, under the SECURE Act, individuals are now able to continue making deductible contributions to their IRA after age 70 1/2? Is there an offset now required if a donor makes a deductible contribution to their IRA and then makes a QCD?

  2. Bob:

    Happy holidays.

    The SECURE Act has several new provisions that charitable retirees should be made aware so they can make educated retirement and estate planning decisions.

    The SECURE Act pushes the age that triggers required minimum distributions or RMDs from 70 ½ to 72.
    The SECURE Act makes no changes to the date at which individuals may begin to use their IRAs (and inherited IRAs) to make qualified charitable distributions or QCDs. The age an IRA owner can make a QCD remains at 70 ½.
    The SECURE Act now allows traditional IRA owners to make contributions beyond
    70 ½.

    What this ultimately means for charitable retirees, and to answer your question, is that an IRA owner who has attained the age 70 ½ and makes tax deductible contributions to an IRA, the qualified charitable distribution is reduced by that amount. I do not believe this will have a significant impact given the tax deductible amount is $6,000 or $7,000 a year depending on a person’s age (IRA owners are allowed to contribute a maximum of $6,000 to their accounts in 2020, with an additional $1,000 catch-up contribution allowed for savers who have already reached their 50th birthdays).

    I believe the reasoning behind the new law is that Congress would like to prevent individuals from making additional tax deductible contributions after age 70 ½ and then immediately have those come out tax free to the charity.

    Hope this clarifies your inquiry. If you have further questions, please let me know.

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