THE CHARITABLE IRA: Important New Law Changes Rules for Some Donors
In late 2019, the Federal Government passed into law a new bill entitled the “Secure Act of 2019”. This new law expands opportunities for individuals to increase their retirement savings, as well as benefit the national treasury through certain changes in IRA estate planning for individuals.
Beginning in 2020, these changes will affect charitably inclined IRA account owners and donors in 2 main areas: (1) Age start date for Required Minimum Distributions (RMDs), and (2) Qualified Charitable Distributions (QCDs) allowance limit for charitable distributions.
New Age (72) Start Date for RMD’s from IRA’s
You generally must begin taking annual required distributions from traditional IRA’s and pay the resulting income tax hit, unless you choose to avoid the tax by directing the distribution to charity. Before the Secure Act, the initial RMD was for the year you turned 70 ½. The new law increases the age you must begin taking RMD’s from 70 ½ to 72.
If you turned 70 ½ in 2019, you are unaffected. This development only applies to clients who reach 70 ½ after 2019.
KEY POINT: The Secure Act does not change the age at which an individual can make a QCD to charity from their IRA, which remains at 70.5. We want to be sure that donors whose current ages are between 70.5 and 72 know that they are still eligible for this unique opportunity to make QCDs, even though they are not required to take RMDs.
QCD Allowance Limit of $100,000 Changes
After reaching the age of 70 ½, you can make qualified charitable contributions of up to $100,000 per year directly from your IRA. Under the new law, QCDs made in a tax year after 2019, the $100,000 QCD limit for that year is reduced by the aggregate amount of deductions allowed for prior years. Therefore, deductible IRA contributions made for the year you reach 70 ½ and later years, can reduce your annual QCD allowance.
The staff at the Community Foundation understands that this new law includes important information and changes for clients who wish to support charity through their IRA investments. We encourage you to consult with your financial and tax advisors to determine the planning strategy best suited to your financial needs. Feel free to contact us if you have any questions.
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