Expanded Definition of Qualified Charitable Distributions


Senior couple consulting with financial agent

The start of 2023 marked the passage of the Secure Act 2.0. This new legislation addresses many issues related to retirement planning, sparking an opportunity for advisors to renew discussions with their clients. This new legislation addresses many issues related to retirement planning, sparking an opportunity for advisors to renew discussions with their clients. Most importantly for charities, it expands the definition of qualified charitable distributions (QCDs) and begins indexing the direct gift amount of $100,000 for inflation starting in 2024.

Beginning in 2023, the definition of qualified charitable distributions is expanded to include certain distributions to create life income gifts, specifically charitable gift annuities (CGA) and charitable remainder trusts (CRT).

In addition to the ability to make gifts through a QCD of $100,000 a year directly to charity, the bill allows IRA owners to make a one-time distribution for a CGA or CRT. This is limited to a maximum of $50,000, and although not limited to a single gift, must be completed in a single year and only once during the lifetime of the IRA owner. These must be CGAs and CRTs that qualify for a charitable deduction under current law.

A few quirks about this law:

  1. All payments made to annuitants from CGAs funded from a QCD will be fully taxable. This is generally the case for a CRT, but payments from CGA’s funded with after-tax assets are generally partially tax-free, so this is an important difference.
  2. QCDs may be made to a trust or annuity only if funded only with IRA assets. So existing trusts could not receive additional contributions from IRAs. Only new CRTs would qualify.
  3. Also, the statute says CGA payments must be at least 5%. This differs from current CGA rules, which set payment based on age and may be less than 5%. Although not an issue today, since CGA rates for those 70½ or older are currently over 5%, CGA rates change with economic conditions, which could be an issue in the future. It does not affect any CGA gifts made now.
  4. Multiple life payments are limited to the IRA owner and their spouse and must be non-assignable. Payments must begin no later than one year from the date of funding; thus, QCDs cannot be used to fund Deferred CGAs.

Within the retirement provisions of the Act, the current required age of 72 to take taxable withdrawals is changed to 73 in 2023 and raised to 75 by 2033. This will have an effect on which persons making QCDs will be able to count the distribution against RMDs.

This does NOT affect the age at which one may make a QCD. The eligibility age for a qualified charitable distribution remains the same at 70½.

Finally, the annual qualified charitable distribution maximum amount of $100,000 will be indexed for inflation starting in 2024.

To learn more about whether a QCD to a Charitable Gift Annuity or a Charitable Remainder Trust is right for your clients or how to help maximize the financial and charitable benefits of any such planning strategies available to your clients, contact Jackie Yahr at 410-369-9248 or jyahr@associated.org.

This is for informational purposes only and should not be construed as legal, tax or financial advice. When considering gift planning strategies, your clients should always consult with their own legal and tax advisors.


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