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.