The SECURE Act 2.0, which became effective on January 1, 2023, features several provisions that encourage charitable gifts. One long-awaited provision allows donors to direct a one-time distribution of up to $50,000 from their Individual Retirement Accounts (IRAs) to a qualified charity (not a donor-advised fund) to create a charitable gift annuity (CGA) or a charitable remainder trust. Practically speaking, many charities and financial providers that serve as trustees impose minimums for charitable remainder trusts that exceed $50,000, making this gift option unlikely. 

There are several requirements when directing an IRA QCD to a CGA:

• donors must be age 70.5 or older
• the maximum gift is $50,000   Note: there is no minimum, but charitable organizations might impose minimum amounts to establish a CGA--only one distribution in one year is permitted
• the CGA can be established only for the donor, the donor’s spouse or both
• the payout rate must be a minimum of 5%
• deferred payment annuities are not permitted
• the CGA must be non-assignable

 Although the law became effective on January 1, it takes time (months or years, not just days) for advisors to become familiar with new laws and discuss them with their clients. I have spoken with a number of prospective donors this year, some of whom did their own research about the law and some of whom spoke with me in a previous year. At least two prospective donors shared that they asked their advisors about this law and were told they cannot establish a CGA with a distribution from an IRA.

Gift planners are taught to refrain from giving legal advice to donors. Nor should we typically contradict what advisors tell their clients/our donors. What I do in this and similar situations is share a link to an article that describes the new law from a well-regarded publication or company. The donors can then make educated decisions and perhaps share the link with their advisors.

 One donor—a doctor who expressed interest in a CGA a few years ago—wanted to make a $100,000 gift to benefit a hospital. My colleague and I met with this donor a few times over several years. I called her early this year to describe the new law, and mentioned the $50,000 maximum. We discussed how she could combine several gifts and assets to reach her goal. This led—as it often does—to a discussion about ways to fund a gift. She decided to fund one CGA with $50,000 from her IRA, and a second CGA with approx. $50,000 of appreciated stock. My colleague and I worked with the doctor’s advisor and stockbroker to close this gift.

 One interesting aspect of this gift discussion was distinguishing a CGA funded with an IRA QCD from a CGA funded with stock. I explained the illustrations carefully to her due and pointed out the differences in the tax deduction and taxation of the income. At one point I felt like the clock was turned back 25 years to my first year as a gift planner!

 Another donor inquired about the new law but acknowledged that he does not need income—especially taxable income—so he made a QCD gift outright. A few donors signed pledges which will be funded with QCD gifts over several years. Note that in 2024, the $100,000 maximum will be indexed for inflation.

Still another donor asked me why he would make a QCD gift outright—as he had in prior years—rather than use a QCD to fund a CGA. I paused to reflect on this new law in an actual situation. I explained that monies donated to a CGA would not have a current impact as his previous years’ gifts had, as we hold and invest the assets while making annuity payments. I explained that the income from a CGA would be fully taxable, just as his IRA distributions were fully taxable if received. I noted that the income would, however, be taxable over time rather than in one year, and that the income stream would be fixed, not fluctuating. Also, he could choose to donate the income from a CGA to charity each year.

Those who decide to direct an IRA QCD to fund a CGA benefit from increased rates in 2023. Regardless of whether a donor chooses to direct an IRA QCD outright to charity to fund a CGA, donors now have an additional option to choose from in supporting the missions of the charities they care about.