THE SECURE ACT 2.0 MAY CHANGE HOW YOU THINK ABOUT RETIREMENT PLANS AND CHARITABLE GIVING
On December 30, 2022, President Biden signed the Consolidated Appropriations Act of 2023 which contained changes to the 2019 Secure Act (hence – the Secure Act 2.0). There are several important provisions in the new Secure Act 2.0:
- Starting age for required minimum distributions has been increased. The original Secure Act, passed in 2019, raised the age for required minimum distributions (RMDs) from retirement plans from age 70 ½ to age 72. Secure Act 2.0 further increases the age to 73 for people born between 1951 and 1959 and to age 75 for those born in 1960 or later.
- Penalties on RMDs have been reduced. Secure Act 2.0 decreases the penalty for missing an RMD, or for distributing too little, from 50% to 25% of the shortfall, and if corrected in a timely manner, further reducing the penalty to 10% of the shortfall.
So, what does this have to do with charitable giving? Good news – the Qualified Charitable Distribution (QCD) rules have been improved. Many people do not need their RMDs. They live comfortably on other sources of income, such as pensions and Social Security. Distributions from retirement accounts are often 100% taxable at the highest income tax rate; therefore, many people will choose to live on sources of income with lower tax rates and defer taking RMDs until they absolutely have to. RMDs can be quite large. The only way to avoid this additional income and the associated tax is to direct it to charity in the form of a QCD.
QCDs under the original Secure Act. The original Secure Act allowed individuals to request up to $100,000 of their RMD be sent directly to a public charity or charities without counting that amount as taxable income for that year — a QCD. QCDs can be used as soon as (but no earlier than) age 70 ½. Because QCDs are not included in taxable income, the tax benefits are greater than taking an RMD and then making a contribution to charity. While DAFs and private foundations will not qualify as public charities for QCD purposes, field-of-interest and other managed funds at community foundations like OCCF will count as public charities for QCD purposes.
QCDs under the Secure Act 2.0. The Secure Act 2.0 improves the original Secure Act QCD rules in a couple of important ways. First, the $100,000 QCD limitation will be indexed for inflation starting in 2024. Additionally, the Secure Act 2.0 expands the QCD public charity restriction by allowing a one-time transfer of up to $50,000 (also subject to annual inflation adjustments) to a charitable remainder annuity trust, charitable remainder unitrust or an immediate charitable gift annuity.
If you have an IRA, 401(k) or other qualified retirement plan subject to the RMD rules and are over 70 1/2, we can help you understand your charitable options. Contact Margita Blattner – Sr. Director of Philanthropic Strategy; email@example.com; 949-464-4510 to discuss the charitable opportunities available for retirement plan assets.