A Once in a Lifetime Gifting Opportunity

Among its many provisions, the SECURE Act 2.0 offers a new method to delay taxes with a charitable twist.

Individuals aged 70.5 or older can now make a one-time rollover of up to $50,000 ($100,000 per married couple) from an IRA to a charitable gift annuity (CGA).

• The rollover is tax-free and goes toward satisfying Required Minimum Distributions (RMDs).
• The CGA pays the individual an annual income stream for life of at least 5%, which is taxable income.
• Whatever amount is left in the CGA at the end of the individual’s life (or joint life if selected for married couples) goes to the designated charity.

The result is that the individual has taken up to $50,000 that may have been distributed and taxed in one year, spread the distribution and taxes over their lifetime, and provided something to charity.

One may also form a charitable remainder trust to receive the $50,000 contribution, but it is doubtful if the cost and complexity of this option are worthwhile. However, a CGA is feasible because of its simplicity and cost-effectiveness. Most larger charities offer CGAs, making the process seamless, with just one or two forms required before monthly checks arrive in your mailbox.

For individuals facing RMDs, this rollover option could provide some tax reprieve. Let’s assume a 75-year-old has an RMD of $60,000 for the year. This distribution would be taxed as ordinary income in the year it occurs. If we take a combined tax rate of 40%, then tax would be $24,000. Conversely, if the individual does not need the funds for living expenses and is philanthropically inclined, they could direct $50,000 to a CGA. They would still need to distribute the remaining $10,000 from their IRA and pay 40%, or $4,000, in taxes, but this avoids $20,000 of tax in the current year. The CGA would then pay them an estimated $2,500 per year, which would incur $1,000 in taxes each year, again assuming a 40% tax rate.

Practically speaking, this lifetime-rollover amount of $50,000 does not present a significant financial planning opportunity, but it does present a incremental benefit for those in a position to take advantage of it.

The information provided herein is for educational purposes only, and should not be construed as advice, including, but not limited to tax, legal, insurance, investment, or retirement advice. For your specific planning needs, please seek the advice of Integris Wealth Management, your tax accountant, attorney, insurance agent, or other professional as appropriate. Investing involves the risk of loss.