Stelter’s Senior Gift Planning Consultant, Lynn M. Gaumer, J.D., outlines sweeping new retirement plan legislation that will affect your planned giving program.
The president just signed into law the omnibus spending bill that included Secure 2.0, new retirement plan legislation that builds on the SECURE Act of 2019. Secure 2.0 aims to expand Americans’ ability to save for retirement and increase their options for doing so. The new law will take effect Jan. 1, 2023.
Three Key Changes That Impact Charitable Giving
1. Increases the required minimum distribution (RMD) age
The new law increases the age retirees must begin taking taxable withdrawals to 73 in 2023 and 75 by 2033, up from the current 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.
How this affects your donors:
Simply put, extending the RMD age gives individuals more time to save. They will enjoy additional tax-free growth. It also can be significant if they do not want to begin withdrawing retirement funds during an unsettled economic climate, giving them more time for their stock portfolio to recover.
2. Adjusts for inflation the $100,000 annual limitation on direct gifts to qualified charities from an IRA
The $100,000 cap for QCDs that has been in place for well over a decade will finally increase annually for inflation.
How this affects your donors:
Retirement plan assets are one of the largest percentages of an individual’s wealth. This new law allows individuals to not only increase their giving but also ensure their giving keeps pace with inflation. And they can make an impact—and see that impact—now rather than after their lifetime.
3. Allows for a distribution from an IRA to fund a life-income gift
A huge win for the nonprofit community. This is a one-time election for a qualified charitable distribution from an IRA to be made to a split-interest entity. The distribution of up to $50,000 could be made to a charitable gift annuity (CGA), charitable remainder unitrust or charitable remainder annuity trust.
Many seasoned professionals from the nonprofit community feel that this will substantially increase interest in CGAs.
How this affects your donors:
These types of life-income gifts allow IRA owners to make a gift to a qualified charitable organization and receive lifetime payments to boost their retirement income or provide a lifetime payment for you or your spouse.
2023 Is the Year of the CGA
The CGA just hit a trifecta that will make it the leading nominee for best planned gift of 2023. Earlier this year, the American Council on Gift Annuities increased gift annuity rates not once but twice, making rates the highest they have been in over a decade. And now, Congress gave the nonprofit community a year-end gift allowing an IRA owner to make a one-time election to make a QCD to fund a CGA.
Next Steps
Review your list of donors and identify those who may be interested in increasing their QCDs or using their IRA to establish a gift annuity with your organization.
Stelter Is Here to Help You Prepare
It’s important to be thoughtful about how to convey this exciting news to your donors. Don’t rush to promote QCDs and CGAs without a plan. We recommend you review your strategic marketing plan for 2023 to ensure it highlights the many benefits of these gifts. To assist you with this, we are providing a letter that you can customize and use for your donor communications.
I have a question regarding the IRA distribution to fund a life-income gift: Can the distribution be combined with other capital (say stock or cash) to allow a donor already interested in a life-income gift to make a larger contribution?