[Updated December 29, 2022] In the final hours of the 117th Congress, provisions of the Legacy IRA Act included in an omnibus spending bill (the Consolidated Appropriations Act, 2023 or H.R. 2617) passed the House and Senate and were signed into law by President Biden, creating a new charitable gift planning opportunity. Beginning in 2023, donors over age 70 ½ will be able to make a Qualified Charitable Distribution (QCD) in exchange for a charitable gift annuity (CGA) or to fund a charitable remainder annuity trust or charitable remainder unitrust. For practical purposes, it is unlikely donors will use this opportunity to fund a charitable remainder trust. However, a charitable gift annuity could be an appealing and viable option for some donors.
There are several limitations:
- a donor can make this election in one tax year only,
- there is an aggregate limit in that year of $50,000, per taxpayer (this amount counts against the overall $100,000 annual limit per taxpayer applicable to QCDs for outright gifts made that same year),
- all gift annuity payments will be fully taxable as ordinary income,
- the annuitant(s) must be the donor and/or the donor’s spouse,
- annuity payments must begin no more than one year after the date of gift and must be at least 5% of the QCD amount,
- the QCD counts toward the donor’s required minimum distribution for the year,
- and there is no charitable deduction.
We are preparing supplemental marketing materials for our Marketing Services clients to promote this new gift planning opportunity and plan to have them available for the new year.
The Act also introduces an annual adjustment for inflation of the $50,000 limit described above and the $100,000 annual limit on QCDs used to make outright gifts, starting after 2023. We expect these limits to increase yearly for QCDs made in 2024 and beyond, as a result.
The omnibus bill includes another change that is not part of the Legacy IRA Act provisions but is of interest to gift planners. The bill raises the age at which the owner of an IRA or other qualified retirement plan must start taking requirement minimum distributions (RMDs). It increases this age from 72 to 73 for individuals who turn 72 after December 31, 2022, and turn 73 before January 1, 2033. It increases this age to 75 for individuals who turn 74 after December 31, 2032. Please note: this change DOES NOT affect the required minimum age for making a QCD. That age remains 70 ½. The change does mean that donors will now need to reach 73 before fulfilling their RMD will be a motivation for making a QCD.
How to Illustrate a CGA Funded with a QCD
No update needed! To illustrate in PGM Anywhere or Planned Giving Manager (PGM) the tax treatment of a CGA issued in exchange for a QCD, choose Ordinary income property as the property type of the gift asset and enter 0 as the cost basis. In PGM Anywhere, you do this in the Gift Annuity follow-up window. In PGM, you do this in the Principal Value – Cost Basis window.
Gift Annuity follow-up window in PGM Anywhere:
Parting Thoughts
While we expect the Legacy IRA Act in its current form to have no impact on charitable remainder trust fundraising, the option to fund a CGA with a QCD will appeal to many donors and provides a new reason to be in touch with them, which is always a good thing. In addition, when the annual adjustment of QCD limits for inflation kicks in, it should encourage some donors to give even more through QCDs. Also, we will be keeping an eye out for legislation that would expand the Legacy IRA Act’s provisions, perhaps by increasing the dollar limit or by allowing transfers to CGAs and CRTs in more than one tax year. The Legacy IRA Act may be just the beginning.
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