Today we welcome back a special guest: 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 Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted Jan. 1, 2020. This legislation marks the most significant changes to retirement security since the Pension Protection Act of 2006.
I’ve received a lot of questions on the new SECURE Act. Here’s a summary of what changed, what stayed the same, what it means and what you can offer your donors.
1. You can contribute to your IRA longer. You can now contribute to your IRA past the age of 70½, allowing you more time to save.
2. The required minimum distribution (RMD) age changed. The SECURE Act changed the age at which you must start taking RMDs from your retirement account from 70½ to 72. This change gives your account additional time to grow.
*Notably, for those born BEFORE July 1, 1949, the previous rules apply. Donors who turned 70½ in 2019 or earlier will have to continue to take required minimum distributions.
3. IRA rules changed for most non-spousal beneficiaries. If you name someone other than your spouse as the beneficiary of your IRA, they now have to withdraw the entire amount within 10 years (previously, they could stretch this over their lifetimes). The law takes effect for deaths of IRA owners after Dec. 31, 2019, so IRAs inherited before then still benefit from prior law.
What Stayed the Same
1. You can still withdraw funds starting at age 59½ with no penalty. You can still access your retirement savings prior to 59½, but there is a 10% early penalty withdrawal. The new law allows for an aggregate amount of $5,000 to be distributed from a retirement plan without a 10% penalty in the event of a qualified birth or adoption.
2. Spouses can still take distributions throughout their lifetimes. When you name your spouse as the beneficiary of your IRA, they can continue to take distributions from the account throughout their lifetime.
3. IRA owners age 70½ and older can still make qualified charitable distributions (QCDs) to qualified charities.
What It Means for Charitable Giving
1. More interest in testamentary life income gifts. Donors may not want their non-spousal beneficiaries to receive their IRA proceeds within 10 years. A testamentary charitable gift annuity (CGA) or a testamentary charitable remainder trust (CRT) may be a solution. An individual can name a CGA or a CRT as a beneficiary. The IRA proceeds will then be used to fund a testamentary CGA or CRT.
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.
2. A need for special messaging for donors between ages 70½ and 72. Donors don’t have to wait to make their QCDs until age 72. By starting at 70½, they can make a difference today, while receiving benefits in return.
These benefits include:
- The gift not counting as income, so donors benefit whether or not they itemize their taxes.
- The opportunity to leverage the most highly taxed assets. When IRAs are passed to loved ones, distributions from these accounts are subject to income taxes at the beneficiary’s ordinary income tax rate, which can be as high as 37%. Rather than leaving these heavily taxed assets to family, encourage your donors to consider giving from these accounts now and let the value of other assets grow and eventually pass to loved ones.
3. Larger retirement plan account balances. Donors can now save and contribute to their retirement accounts for a longer period of time. These accounts may grow in size during this time, leaving nonprofits who have been named as a percentage beneficiary a larger portion of the account. Encourage your donors to name your organization as a beneficiary. As always, encourage your donors to notify you of the gift so you can thank them and ensure that their gift is used exactly as they intend.
If your donors have questions about the impact the SECURE Act will have on their retirement plans, encourage them to make an appointment with their financial advisor. The advisor can review their plans (including your beneficiary designation) and ensure that the donor’s wishes are documented.
Review your list of donors and identify those who may be interested in stretching their IRA distributions out using a testamentary charitable gift annuity or remainder trust. Reach out to them and begin the conversation.
Stelter Is Here to Help
We recommend you begin communicating now with your donors who may be interested in qualified charitable distributions. To assist you with this, we have sample letters that you can customize and use for your donor communications.
Access our sample copies of the QCD request and acknowledgment letters, below.
Want to learn more about the SECURE Act and charitable giving trends for 2020?
Get your questions answered. Join me and Larry Katzenstein for our free one-hour webinar, The SECURE Act and Beyond: What It Means for Charitable Giving, on Wednesday, Jan. 29. Register now while there are still spots available!