What is the “Legacy IRA” legislation?
Under certain circumstances, a donor can make a one-time tax-free Qualified Charitable Distribution (QCD) from their IRA in exchange for a charitable gift annuity. This is a once in a lifetime election, subject to the limitations explained below.
How often can a donor use the Legacy IRA QCD?
A donor can take advantage of this opportunity in only one tax year during their lifetime.
How much can a donor contribute?
Up to $53,000, across one or more gifts, at one or more charities, all of it in one tax year. The total amount distributed counts toward the annual $105,000 limit for QCDs.
If the donor doesn’t use the full $53,000 in a single calendar year, does it rollover?
No. They have one year in which to use this opportunity, there is no rollover or carry forward.
How does the Legacy IRA QCD work with the existing QCD law?
As with QCD outright gifts, QCD life income gifts count towards a donor’s required minimum distribution (RMD). For 2024, total QCD gifts cannot exceed $105,000 per donor, but within this limit there is an aggregate limit of $53,000 for QCD life income gifts.
For example, a donor could make QCD distributions of $25,000 to two different charities to establish a QCD CGA at each, and make an additional outright QCD of $53,000 to a third charity, all in the same calendar year.
Is there an age limit?
A donor must be at least age 70½ at the time the donor makes a QCD contribution of any kind. If a donor includes a non-donor spouse under 70½, the gift will still qualify so long as the payout amount is at least 5%.
Does a QCD to a charitable gift annuity satisfy a supporter's RMD?
Yes. Just like an outright gift of a QCD, a QCD to fund a life income plan satisfies the donor's RMD dollar for dollar. There is more information about RMDs below.
Can a supporter name others to receive payments from a Legacy IRA QCD CGA?
A supporter can name themself and/or a spouse to receive payments.
Are QCD CGA annuity payments taxable?
Yes, all QCD CGA payments are taxed as ordinary income.
Does the supporter get a charitable deduction for a QCD CGA contribution?
There is no charitable deduction, however, there is no income tax on the QCD either.
What is the minimum payout?
The minimum payout for both QCD CGAs is 5%. However, the rate a charity will offer for a QCD CGA will depend upon the age of the annuitant(s) at the time of the gift. Using the ACGA rates effective January 1, 2023, annuity rates for a single life age 70½ (age 71) or two lives, both age 70½ (age 71), will exceed 5%. Use caution if a non-donor annuitant spouse is under 70½ to ensure you’re meeting the 5% minimum.
Can a supporter fund a deferred/flexible deferred with a QCD?
No, but the legislation does allow for a CGA with annual payments beginning one year from the date of the distribution.
Can a donor contribute an additional asset to fund the CGA?
No, additional assets cannot be combined. Any asset contributed on the same day to the charity for a CGA would have to be used to establish a second CGA on the same date.
How does a donor make a QCD CGA gift?
To qualify, the QCD must go directly from the IRA custodian to charity, it cannot first be distributed to the plan’s owner (the donor). To ensure that the transfer happens properly, the donor needs the charity’s legal name, their tax ID number (EID), and their legal address. This information, along with the QCD amount, is then given to the custodian, typically through an online form. The custodian will then issue a check directly to the charity. Some plan owners have check writing ability against their IRA accounts. In such cases, a donor could write a check directly to the charity to establish the gift.
How do the ages for a QCD and the RMD interact?
A donor can make a QCD beginning at age 70½. The age at which RMD’s are mandatory is 73 beginning in 2023. A donor can make a QCD beginning at 70½ and prior to being subject to RMD, but the additional tax benefit of satisfying the RMD with the QCD does not begin until the donor is subject to RMD.
What is the Required Minimum Distribution?
Qualified retirement plans, such as 401(k)s and IRAs, are funded with pre-tax income and grow tax-free. However, when the taxpayer withdraws money from those accounts, the withdrawal is taxed as ordinary income. Withdrawals are not required until the plan owner reaches an age subject to the Required Minimum Distribution (RMD), after which the individual must withdraw – and pay income tax on – a certain required minimum amount each year. Beginning in 2023, the age at which RMDs are mandatory is 73. Failure to take the full RMD is subject to a penalty of 25% of the amount not withdrawn. If the individual doesn’t want or need their RMD, a QCD is a good way to avoid taxation on the RMD, as well as the penalty for failure to make the full RMD withdrawal.